UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2018~~March 31, 2019

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________ to _____________

Commission File Number: 0-1402

LINCOLN ELECTRIC HOLDINGS, INC.

(Exact name of registrant as specified in its charter)



Ohio		34-1860551
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

22801 St. Clair Avenue, Cleveland, Ohio		44117
(Address of principal executive offices)		(Zip Code)

(216) 481-8100

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “small reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large accelerated filer x		Accelerated filer o
Non-accelerated filer o		Smaller reporting company o
		Emerging growth company o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares outstanding of the registrant’s common shares as of ~~September 30, 2018~~March 31, 2019 was ~~64,445,633~~62,799,738.

TABLE OF CONTENTS



PART I. FINANCIAL INFORMATION		3
Item 1. Financial Statements		3
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)		3
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)		4
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)		5
CONSOLIDATED STATEMENTS OF EQUITY (UNAUDITED)		6
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)		67
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS		78
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		2320
Item 3. Quantitative and Qualitative Disclosures About Market Risk		3327
Item 4. Controls and Procedures		3328

PART II. OTHER INFORMATION		3429
Item 1. Legal Proceedings		3429
Item 1A. Risk Factors		3429
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3429
Item 4. Mine Safety Disclosures		3530
Item 6. Exhibits		3530
Signatures		3631
EX-31.1	Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-31.2	Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
EX-32.1	Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-101	Instance Document
EX-101	Schema Document
EX-101	Calculation Linkbase Document
EX-101	Label Linkbase Document
EX-101	Presentation Linkbase Document
EX-101	Definition Linkbase Document

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(In thousands, except per share amounts)


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Net sales (Note 2)	$	737,099		$	669,491		$	2,284,847		$	1,877,246		$	759,174		$	757,696
Cost of goods sold	485,547			451,610			1,506,625			1,240,391			500,753			501,142
Gross profit	251,552			217,881			778,222			636,855			258,421			256,554
Selling, general & administrative expenses	148,129			133,826			473,260			387,820			160,408			161,191
Rationalization and asset impairment charges (Note 6)	2,636			—			24,353			—			3,535			10,175
Bargain purchase gain (Note 4)	—			(51,585		)	—			(51,585		)
Operating income	100,787			135,640			280,609			300,620			94,478			85,188

Interest expense, net	3,969			4,595			13,222			14,984			5,323			4,441
Other income (expense) (Note 13)	(1,074		)	(403		)	6,818			6,872
Other income (expense) (Note 14)													3,763			3,451
Income before income taxes	95,744			130,642			274,205			292,508			92,918			84,198
Income taxes (Note 14)	25,209			24,531			73,991			69,218
Income taxes (Note 15)													21,452			23,378
Net income including non-controlling interests	70,535			106,111			200,214			223,290			71,466			60,820
Non-controlling interests in subsidiaries’ earnings (loss)	(4		)	(15		)	(13		)	(32		)	(14		)	(4		)
Net income	$	70,539		$	106,126		$	200,227		$	223,322		$	71,480		$	60,824

Basic earnings per share (Note 3)	$	1.09		$	1.61		$	3.07		$	3.40		$	1.13		$	0.93
Diluted earnings per share (Note 3)	$	1.07		$	1.59		$	3.03		$	3.35		$	1.12		$	0.92
Cash dividends declared per share	$	0.39		$	0.35		$	1.17		$	1.05		$	0.47		$	0.39

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands)

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
Net income including non-controlling interests $ 70,535
$ 106,111
$ 200,214
$ 223,290
Other comprehensive income (loss), net of tax:

Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges, net of tax of $390 and $415 in the three and nine months ended September 30, 2018; $239 and $(95) in the three and nine months ended September 30, 2017. 1,416
(684 ) 1,039
563
Defined benefit pension plan activity, net of tax of $1,278 and $1,927 in the three and nine months ended September 30, 2018; $2,170 and $2,532 in the three and nine months ended September 30, 2017. 3,855
3,958
5,863
5,384
Currency translation adjustment (467 ) 18,931
(31,422 ) 72,820
Other comprehensive income (loss): 4,804
22,205
(24,520 ) 78,767
Comprehensive income 75,339
128,316
175,694
302,057
Comprehensive income (loss) attributable to non-controlling interests (65 ) 16
(105 ) 47
Comprehensive income attributable to shareholders $ 75,404
$ 128,300
$ 175,799
$ 302,010



	Three Months Ended March 31,
	2019		2018
Net income including non-controlling interests	$	71,466	$	60,820
Other comprehensive income, net of tax:
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax of $122 and $334 in the three months ended March 31, 2019 and 2018	329		855
Defined benefit pension plan activity, net of tax of $227 and $431 in the three months ended March 31, 2019 and 2018	787		1,287
Currency translation adjustment	5,136		19,387
Other comprehensive income:	6,252		21,529
Comprehensive income	77,718		82,349
Comprehensive income attributable to non-controlling interests	23		55
Comprehensive income attributable to shareholders	$	77,695	$	82,294

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)


	September 30, 2018			December 31, 2017			March 31, 2019			December 31, 2018
	(UNAUDITED)			(NOTE 1)			(UNAUDITED)			(NOTE 1)
ASSETS
Current Assets
Cash and cash equivalents	$	398,200		$	326,701		$	267,134		$	358,849
Accounts receivable (less allowance for doubtful accounts of $13,986 in 2018; $15,943 in 2017)	409,594			395,279
Inventories (Note 8)	377,431			348,667
Marketable securities	99,282			179,125
Accounts receivable (less allowance for doubtful accounts of $13,501 in 2019; $12,827 in 2018)							423,187			396,885
Inventories (Note 9)							375,737			361,829
Other current assets	121,065			123,836			127,112			120,236
Total Current Assets	1,405,572			1,373,608			1,193,170			1,237,799
Property, plant and equipment (less accumulated depreciation of $799,084 in 2018; $787,780 in 2017)	461,828			477,031
Property, plant and equipment (less accumulated depreciation of $792,447 in 2019; $778,817 in 2018)							476,876			478,801
Goodwill	233,741			234,582			282,512			281,294
Other assets	318,504			321,326			402,293			351,931
TOTAL ASSETS	$	2,419,645		$	2,406,547		$	2,354,851		$	2,349,825

LIABILITIES AND EQUITY
Current Liabilities
Short-term debt (Note 11)	$	794		$	2,131
Short-term debt (Note 12)							$	110		$	111
Trade accounts payable	246,783			269,763			252,840			268,600
Accrued employee compensation and benefits	138,622			91,902			87,126			94,202
Other current liabilities	159,352			164,946			185,451			175,269
Total Current Liabilities	545,551			528,742			525,527			538,182
Long-term debt, less current portion (Note 11)	698,468			704,136
Long-term debt, less current portion (Note 12)							705,725			702,549
Other liabilities	247,758			241,216			258,934			221,502
Total Liabilities	1,491,777			1,474,094			1,490,186			1,462,233
Shareholders’ Equity
Common shares	9,858			9,858			9,858			9,858
Additional paid-in capital	357,749			334,309			364,418			360,308
Retained earnings	2,505,396			2,388,219			2,605,265			2,564,440
Accumulated other comprehensive loss	(271,614		)	(247,186		)	(287,524		)	(293,739		)
Treasury shares	(1,674,232		)	(1,553,563		)	(1,828,025		)	(1,753,925		)
Total Shareholders’ Equity	927,157			931,637			863,992			886,942
Non-controlling interests	711			816			673			650
Total Equity (Note 7)	927,868			932,453
Total Equity							864,665			887,592
TOTAL LIABILITIES AND TOTAL EQUITY	$	2,419,645		$	2,406,547		$	2,354,851		$	2,349,825

See notes to these consolidated financial statements.

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

(In thousands, except per share amounts)



	Common Shares Outstanding		Common Shares		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares			Non-controlling Interests			Total
Balance at December 31, 2018	63,546		$	9,858	$	360,308	$	2,564,440		$	(293,739	)	$	(1,753,925	)	$	650		$	887,592
Net income							71,480									(14		)	71,466
Unrecognized amounts from defined benefit pension plans, net of tax										787									787
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax										329									329
Currency translation adjustment										5,099						37			5,136
Cash dividends declared – $0.47 per share							(29,847		)										(29,847		)
Stock-based compensation activity	148				3,302								1,484						4,786
Purchase of shares for treasury	(894	)											(75,584		)				(75,584		)
Other					808		(808		)										—
Balance at March 31, 2019	62,800		$	9,858	$	364,418	$	2,605,265		$	(287,524	)	$	(1,828,025	)	$	673		$	864,665



	Common Shares Outstanding		Common Shares		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Treasury Shares			Non-controlling Interests			Total
Balance at December 31, 2017	65,663		$	9,858	$	334,309	$	2,388,219		$	(247,186	)	$	(1,553,563	)	$	816		$	932,453
Net income							60,824									(4		)	60,820
Unrecognized amounts from defined benefit pension plans, net of tax										1,287									1,287
Unrealized gain on derivatives designated and qualifying as cash flow hedges, net of tax										855									855
Currency translation adjustment										19,328						59			19,387
Cash dividends declared – $0.39 per share							(25,787		)										(25,787		)
Stock-based compensation activity	55				5,819								562						6,381
Purchase of shares for treasury	(159	)											(14,724		)				(14,724		)
Other					5,483		(5,483		)										—
Balance at March 31, 2018	65,559		$	9,858	$	345,611	$	2,417,773		$	(225,716	)	$	(1,567,725	)	$	871		$	980,672

LINCOLN ELECTRIC HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)


	Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	200,227		$	223,322		$	71,480		$	60,824
Non-controlling interests in subsidiaries’ loss	(13		)	(32		)	(14		)	(4		)
Net income including non-controlling interests	200,214			223,290			71,466			60,820
Adjustments to reconcile Net income including non-controlling interests to Net cash provided by operating activities:
Rationalization and asset impairment net gains (Note 6)	(1,408		)	—
Bargain purchase gain (Note 4)	—			(51,585		)
Rationalization and asset impairment net charges (Note 6)							1,424			676
Depreciation and amortization	53,946			50,457			18,901			18,134
Equity earnings in affiliates, net	(1,427		)	(216		)	(448		)	(538		)
Deferred income taxes	4,444			3,129			1,317			7,955
Stock-based compensation	13,583			9,966			4,149			4,419
Pension expense and settlement charges (Note 12)	2,714			816
Other, net	(8,659		)	(330		)	(1,072		)	(5,072		)
Changes in operating assets and liabilities, net of effects from acquisitions:
Increase in accounts receivable	(25,492		)	(24,300		)	(26,900		)	(40,468		)
Increase in inventories	(41,533		)	(22,526		)	(14,638		)	(28,052		)
(Increase) decrease in other current assets	(12,081		)	515
Decrease in trade accounts payable	(17,523		)	(8,932		)
Increase in other current liabilities	58,397			61,332
Increase in other current assets							(8,701		)	(1,458		)
(Decrease) increase in trade accounts payable							(15,107		)	3,191
(Decrease) increase in other current liabilities							(5,947		)	22,966
Net change in other assets and liabilities	4,602			3,738			1,434			1,204
NET CASH PROVIDED BY OPERATING ACTIVITIES	229,777			245,354			25,878			43,777

CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures	(48,746		)	(38,959		)	(16,251		)	(14,657		)
Acquisition of businesses, net of cash acquired	6,591			(72,468		)	—			6,235
Proceeds from sale of property, plant and equipment	10,585			1,994			302			118
Purchase of marketable securities	(268,335		)	(145,553		)	—			(89,545		)
Proceeds from marketable securities	348,178			5,190			—			131,966
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES	48,273			(249,796		)
Other investing activities							2,000			—
NET CASH (USED BY) PROVIDED BY INVESTING ACTIVITIES							(13,949		)	34,117

CASH FLOWS FROM FINANCING ACTIVITIES
Amounts due banks, net	(639		)	(602		)	—			(60		)
Proceeds from long-term borrowings	—			34
Payments on long-term borrowings	(7		)	(37		)	(3		)	(3		)
Proceeds from exercise of stock options	4,448			14,333			637			1,962
Purchase of shares for treasury (Note 7)	(121,477		)	(23,012		)
Purchase of shares for treasury (Note 8)							(75,584		)	(14,724		)
Cash dividends paid to shareholders	(76,674		)	(69,083		)	(30,560		)	(25,661		)
Other financing activities	(2,170		)	(15,561		)
NET CASH USED BY FINANCING ACTIVITIES	(196,519		)	(93,928		)	(105,510		)	(38,486		)

Effect of exchange rate changes on Cash and cash equivalents	(10,032		)	18,644			1,866			2,947
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS	71,499			(79,726		)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS							(91,715		)	42,355

Cash and cash equivalents at beginning of period	326,701			379,179			358,849			326,701
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	398,200		$	299,453		$	267,134		$	369,056

See notes to these consolidated financial statements.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Dollars in thousands, except per share amounts

NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

As used in this report, the term “Company,” except as otherwise indicated by the context, means Lincoln Electric Holdings, Inc. and its wholly-owned and majority-owned subsidiaries for which it has a controlling interest.

The consolidated financial statements include the accounts of all legal entities in which the Company holds a controlling interest. The Company is also considered to have a controlling interest in a variable interest entity (“VIE”) if the Company determines it is the primary beneficiary of the VIE. Investments in legal entities in which the Company does not own a majority interest but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method.

The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, these unaudited consolidated financial statements do not include all of the information and notes required by GAAP for complete financial statements. However, in the opinion of management, these unaudited consolidated financial statements contain all the adjustments (consisting of normal recurring accruals) considered necessary to present fairly the financial position, results of operations and cash flows for the interim periods. Operating results for the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 are not necessarily indicative of the results to be expected for the year ending December 31, ~~2018~~2019.

The accompanying Consolidated Balance Sheet at December 31, ~~2017~~2018 has been derived from the audited financial statements at that date, but does not include all of the information and notes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~2018.

~~Certain reclassifications have been made to the prior year financial statements to conform to current year classifications.~~

New Accounting Pronouncements:

This section provides a description of new accounting pronouncements ("Accounting Standard Update" or "ASU") issued by the Financial Accounting Standards Board ("FASB") that are applicable to the Company.

The following ASUs were adopted as of January 1, ~~2018 and did not have a significant financial impact on the Company's consolidated financial statements unless otherwise described within the table below:~~2019:



Standard	Description
ASU No. ~~2017-12,~~2018-02, ~~Derivatives and Hedging~~Income Statement - Reporting Comprehensive Income (Topic ~~815): Targeted Improvements to Accounting for Hedging Activities~~220), issued ~~August 2017.~~February 2018.	ASU ~~2017-12 provides updated~~2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Cuts and Jobs Act (the "U.S. Tax Act"). The ASU only applies to the income tax effects of the U.S. Tax Act; all other existing guidance ~~to more closely align hedge accounting with a company's risk management strategy, to simplify~~remains the ~~application of hedge accounting and to better portray the economic results of hedging instruments in the financial statements.~~same. The Company ~~early adopted~~has elected not to reclassify the ~~ASU on January 1, 2018.~~

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~



~~Standard~~	~~Description~~income tax effects of the U.S. Tax Act from Accumulated other comprehensive loss to Retained earnings.
ASU No. ~~2017-07,~~2016-02, ~~Compensation - Retirement Benefits~~Leases (Topic ~~715): Improving the Presentation of Net Period Pension Cost and Net Periodic Postretirement Benefit Cost~~842), issued ~~March 2017.~~February 2016	ASU ~~2017-07 requires an entity~~2016-02 ("Topic 842") aims to ~~report the service cost component~~increase transparency and comparability among organizations by recognizing a right of the net periodic benefit cost in the same income statement line item as other employee compensation costs. The other components of the net periodic benefit cost are required to be presented in the income statement separately from the service cost componentuse asset and outside of any subtotal of operating income. Additionally, only the service cost component will be eligible for capitalization in assets. The impact of the adoption resulted in the reclassification of the other components of net periodic benefit cost from Cost of goods sold and Selling, general & administrative expenses to Other income (expense). The reclassification resulted in an increase in Operating income of $2,570 as a result of a decrease in Pension settlement charges of $5,283, partially offset by increases in Cost of goods sold of $1,635 and Selling, general & administrative expenses of $1,078 for the three months ended September 30, 2017. The reclassification resulted in a decrease in Operating income of $1,578 as a result of a decrease in Pension settlement charges of $5,283, partially offset by increases in Cost of goods sold of $4,005 and Selling, general & administrative expenses of $2,856 for the nine months ended September 30, 2017. Refer to Note 12 to the consolidated financial statements for details.
~~ASU No. 2017-01,~~ ~~Business Combinations (Topic 805): Clarifying the Definition of a Business,~~ ~~issued January 2017.~~	~~ASU 2017-01 provides updated guidance for evaluating whether certain transactions should be accounted for as an acquisition (or disposal) of an asset or a business.~~
~~ASU No. 2016-18,~~ ~~Statement of Cash Flows(Topic 230): Restricted Cash,~~ ~~issued November 2016.~~	ASU 2016-18 requires amounts generally described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shownlease liability on the ~~statement of cash flows.~~
~~ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,~~ ~~issued October 2016.~~	~~ASU 2016-16 requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs.~~
~~ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,~~ ~~issued August 2016.~~	ASU 2016-15 reduces existing diversity in practice by addressing eight specific cash flow issues related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
~~ASU 2014-09,~~ ~~Revenue from Contracts with Customers (Topic 606)~~ ~~issued May 2014andASU 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, issued August 2015.~~	ASU 2014-09 requires an entity to recognize revenue in a manner that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchangebalance sheet for ~~those goods or services. The standard also specifies the accounting of some costs to obtain or fulfill a contract~~all leases with a ~~customer and expands~~lease term greater than twelve months. Topic 842 also requires the disclosure ~~requirements around contracts with customers. ASU 2015-14 deferred the effective date~~ of ~~ASU 2014-09 to annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years.~~key information about leasing agreements. The Company adopted ~~ASU 2014-09 as of January 1, 2018~~Topic 842 using the modified retrospective transition ~~method applied to those contracts that were not completed as~~option of ~~that~~applying the new standard at the adoption date. The ~~adoption did~~Company also elected the package of practical expedients, which among other things, allows it to not ~~have a material impact on~~reassess the ~~consolidated financial statements.~~identification, classification and initial direct costs of leases commencing before the effective date of Topic 842. Refer to Note 210 to the consolidated financial statements for further details.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The Company is currently evaluating the impact on its financial statements of the following ASUs:



Standard	Description
ASU No. 2018-14, Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20), issued August 2018.	ASU 2018-14 modifies disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The ASU also requires an entity to disclose the weighted-average interest crediting rates for cash balance plans and to explain the reasons for significant gains and losses related to changes in the benefit obligation. The ASU is effective January 1, 2020 and early adoption is permitted.
ASU No. 2018-13, Fair Value Measurement (Topic 944), issued August 2018.	ASU 2018-13 eliminates, amends and adds disclosure requirements related to fair value measurements. The ASU impacts various elements of fair value disclosure, including but not limited to, changes in unrealized gains or losses, significant unobservable inputs and measurement uncertainty. The ASU is effective January 1, 2020 and early adoption is permitted.
~~ASU No. 2018-02,~~ ~~Income Statement - Reporting Comprehensive Income (Topic 220), issued February 2018.~~	ASU 2018-02 allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the U.S. Tax Act (as defined within Note 14 to the consolidated financial statements). The ASU only applies to the income tax effects of the U.S. Tax Act, all other existing guidance remains the same. The ASU is effective January 1, 2019, early adoption is permitted and the ASU should be applied retrospectively to each period impacted by the U.S. Tax Act.
~~ASU No. 2016-02,~~ ~~Leases (Topic 842), issued February 2016 and ASU 2018-10,~~ ~~Codification Improvements to Topic 842, Leases, issued July 2018.~~	ASU 2016-02 aims to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring disclosure of key information about leasing agreements. ASU 2018-10 provides narrow amendments to clarify how to apply certain aspects of the new lease standard. Entities are required to recognize and measure leases at the beginning of the earliest period presented using a modified retrospective approach. The modified retrospective approach includes a number of optional practical expedients that entities may elect to apply. The ASU is effective January 1, 2019 and early adoption is permitted. The Company has established a cross-functional team to implement the ASU and is in the process of gathering data on all leases and designing a new system solution. The Company is also evaluating its processes and internal controls to meet the ASU’s accounting, reporting and disclosure requirements. While the Company has not yet completed its evaluation of the ASU’s impact, the Company expects to recognize a right of use asset and a corresponding liability on the Consolidated Balance Sheets related to substantially all operating lease arrangements. The Company plans to adopt the package of practical expedients for all leases commenced before January 1, 2019.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

NOTE 2 — REVENUE RECOGNITION

~~Adoption of ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)"~~

On January 1, 2018, the Company adopted ASU 2014-09 (“Topic 606”) using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with the Company's historic accounting. The cumulative impact of adopting Topic 606 as of January 1, 2018 did not have a material impact to the consolidated financial statements. The Company does not expect the impact of the adoption of Topic 606 to be material to the consolidated financial statements on an ongoing basis.

~~Revenue Recognition~~

Revenue is recognized when obligations under the terms of a contract are satisfied and control is transferred to the customer. Revenue is measured as the amount of consideration the Company expects to be entitled to in exchange for goods or services. The Company recognizes any discounts, credits, returns, rebates and incentive programs based on reasonable estimates as a reduction of sales to arrive at Net sales at the same time the related revenue is recorded. Taxes collected by the Company, including sales tax and value add tax, are excluded from Net sales. The Company recognizes freight billed as a component of Net sales and shipping costs as a component of Cost of goods sold when control transfers to the customer. Sales commissions are expensed when incurred because the amortization period is generally one year or less. These costs are recorded within Selling, general and administrative expenses in the Company's Consolidated Statements of Income.

The Company’s payment terms vary by the type and location of the customer and the products or services offered. The Company does not offer any payment terms that would meet the requirements for consideration as a financing component under Topic 606.

The following table presents the Company's Net sales disaggregated by product line:


					Three Months Ended March 31,
	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018		2019		2018
Consumables	$	426,837	$	1,329,768	$	442,958	$	441,891
Equipment	310,262		955,079		316,216		315,805
Net sales	$	737,099	$	2,284,847	$	759,174	$	757,696

Consumable sales consist of electrodes, fluxes, specialty welding consumables and brazing and soldering alloys. Equipment sales consist of arc welding power sources, welding accessories, fabrication, plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, automation components, fume extraction equipment, CNC plasma and oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. Consumable and Equipment products are sold within each of the Company’s operating segments.

Substantially all of the Company's sales arrangements are short-term in nature involving a single performance obligation. The Company recognizes revenue when the performance obligation is satisfied and control of the product is transferred to the customer based upon shipping terms.

Within the Equipment product line, there are certain customer contracts related to automation products that may include multiple performance obligations. For such arrangements, the Company allocates revenue to each performance obligation based on its relative standalone selling price. The Company generally determines the standalone selling price based on the prices charged to customers or using expected cost plus margin. In addition, ~~for~~ certain customized automation ~~deliverables~~performance obligations within the Equipment product line, ~~there~~ are ~~contracts~~ accounted for over time. Under this method, revenue recognition is primarily based upon the ratio of costs incurred to date compared with estimated total costs to complete. The cumulative impact of revisions to total estimated costs is reflected in the period of the change, including anticipated losses. Less than 10% of the Company's Net sales are recognized over time.

At ~~September 30, 2018,~~March 31, 2019, the Company recorded ~~$18,302~~$15,929 related to advance customer payments and ~~$15,095~~$12,244 related to billings in excess of revenue recognized. These contract liabilities are included in Other current liabilities in the Condensed Consolidated Balance Sheets. At ~~January 1,~~December 31, 2018, the balances related to advance customer payments and billings in excess of revenue recognized were ~~$19,683~~$17,023 and ~~$11,132,~~$17,013, respectively. Substantially all of the Company’s contract liabilities are recognized within twelve months based on contract duration. The Company records an asset for contracts where it has recognized revenue, but has not yet invoiced the customer for goods or services. At ~~September 30,~~March 31, 2019 and December 31, 2018, $35,378 and ~~January 1, 2018, $33,429 and $22,229,~~$25,032, respectively, related to these future customer receivables was included in Other current assets in the Condensed Consolidated Balance Sheets. Contract asset amounts are expected to be billed within the next twelve months.

109

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 3 — EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted earnings per share:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2018		2017		2018		2017		2019		2018
Numerator:
Net income	$	70,539	$	106,126	$	200,227	$	223,322	$	71,480	$	60,824
Denominator (shares in 000's):
Basic weighted average shares outstanding	64,821		65,806		65,245		65,769		63,160		65,579
Effect of dilutive securities - Stock options and awards	831		896		810		910		739		864
Diluted weighted average shares outstanding	65,652		66,702		66,055		66,679		63,899		66,443
Basic earnings per share	$	1.09	$	1.61	$	3.07	$	3.40	$	1.13	$	0.93
Diluted earnings per share	$	1.07	$	1.59	$	3.03	$	3.35	$	1.12	$	0.92

For the three months ended ~~September 30,~~March 31, 2019 and 2018, ~~and 2017,~~ common shares subject to equity-based awards of ~~346,168~~498,694 and 182,615, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive. For the nine months ended September 30, 2018 and 2017, common shares subject to equity-based awards of 317,528 and 807,763,174,325, respectively, were excluded from the computation of diluted earnings per share because the effect of their exercise would be anti-dilutive.

NOTE 4 — ACQUISITIONS

~~On July 31, 2017,~~During April 2019, the Company ~~completed its acquisition~~acquired Baker Industries, Inc. ("Baker"). Baker, based in Detroit, Michigan, is a provider of Air Liquide Welding, a subsidiary of Air Liquide. The agreed upon purchase price was $135,123, which was adjusted for certain debt like obligations, for a net purchase price of $61,953, net of cash acquired. The primary debt like obligations were pension liabilities.custom tooling, parts and fixtures primarily serving automotive and aerospace markets. The acquisition ~~was accounted for as~~will complement the Company's automation portfolio and its metal additive manufacturing service business.

During December 2018, the Company acquired the soldering business of Worthington Industries (“Worthington”). The Worthington business, based in Winston Salem, North Carolina, broadens The Harris Products Group’s portfolio of industry-leading consumables with the addition of premium solders and fluxes.

Also during December 2018, the Company acquired Coldwater Machine Company (“Coldwater”) and Pro Systems. Coldwater, based in Coldwater, Ohio, is a ~~business combination.~~flexible automation integrator and precision machining and assembly manufacturer serving diverse end markets. Pro Systems, based in Churubusco, Indiana, is an automation systems designer and integrator serving automotive, industrial, electrical and medical applications. The ~~funding of the cash portion of the purchase price~~acquisitions accelerate growth and ~~acquisition costs was provided for with available cash.~~

~~The complementary business enhanced~~expand the Company’s ~~global specialty consumables~~industry-leading portfolio of automated cutting and ~~extended its channel reach~~joining solutions.

Also during December 2018, the Company acquired Inovatech Engineering Corporation (“Inovatech”). Inovatech, based in Ontario, Canada, is a manufacturer of advanced robotic plasma cutting solutions for ~~equipment systems and cutting, soldering and brazing solutions in Europe.~~structural steel applications. The acquisition ~~also offers European customers more comprehensive welding~~scales the Company's automated cutting solutions ~~greater technical~~and application expertise and ~~improved service levels.~~

~~The fair value of the net assets acquired exceeded the purchase consideration, resulting~~supports long-term growth in a bargain purchase gain at acquisition, which was included in Bargain purchase gain in the Company’s Consolidated Statements of Income for the nine months ended September 30, 2017. The Company believes that the bargain purchase gain was primarily the result of the divestiture by Air Liquide of the welding business, which was outside Air Liquide’s core business, as part of an overall repositioning of its core business. The Company anticipates future integration initiatives are necessary in order to achieve commercial and operational synergies.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

~~The following table summarizes the purchase price allocation for the Air Liquide Welding acquisition:~~

Assets acquired and liabilities assumed As of July 31, 2017
Accounts receivable $ 89,442
Inventory ⁽¹⁾
97,803
Property, plant and equipment ⁽²⁾
73,056
Intangible assets ⁽³⁾
11,715
Accounts payable (65,640 )
Pension liability (67,563 )
Bargain purchase gain ⁽⁶⁾
(49,650 )
Net other assets and liabilities ⁽⁴⁾
(27,210 )
Total purchase price, net of cash acquired⁽⁵⁾
$ 61,953


~~(1)~~	~~A portion of inventories acquired were sold in the third quarter of 2017 resulting in a $2,314 increase in Cost of goods sold for the amortization of step up in the value of acquired inventories.~~


~~(2)~~	Property, plant and equipment acquired includes a number of manufacturing and distribution sites, including the related facilities, land and leased sites, and machinery and equipment for use in manufacturing operations.


~~(3)~~	$7,099 of the intangible asset balance was assigned to a trade name expected to have an indefinite life. Of the remaining amount, $1,183 was assigned to a finite-lived trade name (10 year weighted average useful life) and $3,433 was assigned to other intangible assets (9 year weighted average life).


~~(4)~~	~~Consists primarily of other accrued liabilities.~~

~~(5) Reflects a receivable from seller for an agreed upon purchase price adjustment. The payment of $10,983 was received in the first quarter of 2018.~~

~~(6) An adjustment of $1,935 was recorded to the Bargain purchase gain in the fourth quarter of 2017.~~

In the three and nine months ended September 30, 2018, the Company recognized $970 and $3,665, respectively, in acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. In the three and nine months ended September 30, 2017, the Company recognized $3,273 and $11,386, respectively, in acquisition transaction and integration costs related to the acquisition of Air Liquide Welding. Such costs were expensed as incurred and are included in Selling, general & administrative expenses in the Company's Consolidated Statements of Income.market.

Pro forma information related to ~~this acquisition~~the acquisitions discussed above has not been presented because the impact on the Company’s Consolidated Statements of Income is not material. Acquired companies are included in the Company's consolidated financial statements as of the date of acquisition.

NOTE 5 — SEGMENT INFORMATION

The Company's business units are aligned into three operating segments. The operating segments consist of Americas Welding, International Welding and The Harris Products Group. The Americas Welding segment includes welding operations in North and South America. The International Welding segment includes welding operations in Europe, Africa, Asia and Australia. The Harris Products Group includes the Company’s global cutting, soldering and brazing businesses as well as its retail business in the United States.

Segment performance is measured and resources are allocated based on a number of factors, the primary ~~profit~~ measure being the adjusted earnings before interest and income taxes (“Adjusted EBIT”). profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

1210

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

~~Financial information for the reportable segments follows:~~The following table presents Adjusted EBIT by segment:

Americas Welding International Welding
The Harris
Products Group

Corporate /
Eliminations
Consolidated
Three Months Ended September 30, 2018

Net sales $ 454,010
$ 209,622
$ 73,467
$ —
$ 737,099
Inter-segment sales 31,845
3,663
1,537
(37,045 ) —
Total $ 485,855
$ 213,285
$ 75,004
$ (37,045 ) $ 737,099

Adjusted EBIT $ 89,253
$ 10,721
$ 8,676
$ (1,099 ) $ 107,551
Special items charge (gain) ⁽¹⁾
4,232
2,636
—
970
7,838
EBIT $ 85,021
$ 8,085
$ 8,676
$ (2,069 ) $ 99,713
Interest income

1,993
Interest expense

(5,962 )
Income before income taxes

$ 95,744
Three Months Ended September 30, 2017

Net sales $ 398,289
$ 197,617
$ 73,585
$ —
$ 669,491
Inter-segment sales 25,546
5,451
2,064
(33,061 ) —
Total $ 423,835
$ 203,068
$ 75,649
$ (33,061 ) $ 669,491

Adjusted EBIT $ 74,096
$ 10,612
$ 9,244
$ 570
$ 94,522
Special items charge (gain) ⁽²⁾
5,283
2,314
—
(48,312 ) (40,715 )
EBIT $ 68,813
$ 8,298
$ 9,244
$ 48,882
$ 135,237
Interest income

1,327
Interest expense

(5,922 )
Income before income taxes

$ 130,642
Nine Months Ended September 30, 2018

Net sales $ 1,351,297
$ 700,315
$ 233,235
$ —
$ 2,284,847
Inter-segment sales 89,671
13,669
5,447
(108,787 ) —
Total $ 1,440,968
$ 713,984
$ 238,682
$ (108,787 ) $ 2,284,847

Adjusted EBIT $ 254,850
$ 41,970
$ 28,058
$ (4,443 ) $ 320,435
Special items charge (gain) ⁽¹⁾
4,990
24,353
—
3,665
33,008
EBIT $ 249,860
$ 17,617
$ 28,058
$ (8,108 ) $ 287,427
Interest income

5,273
Interest expense

(18,495 )
Income before income taxes

$ 274,205
Nine Months Ended September 30, 2017

Net sales $ 1,186,760
$ 468,003
$ 222,483
$ —
$ 1,877,246
Inter-segment sales 75,380
15,214
6,763
(97,357 ) —
Total $ 1,262,140
$ 483,217
$ 229,246
$ (97,357 ) $ 1,877,246

Adjusted EBIT $ 217,317
$ 29,713
$ 27,491
$ 369
$ 274,890
Special items charge (gain) ⁽²⁾
5,283
2,314
—
(40,199 ) (32,602 )
EBIT $ 212,034
$ 27,399
$ 27,491
$ 40,568
$ 307,492
Interest income

3,349
Interest expense

(18,333 )
Income before income taxes

$ 292,508

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~



	Americas Welding		International Welding		The Harris Products Group		Corporate / Eliminations			Consolidated
Three Months Ended March 31, 2019
Net sales	$	457,719	$	218,086	$	83,369	$	—		$	759,174
Inter-segment sales	29,388		4,209		1,867		(35,464		)	—
Total	$	487,107	$	222,295	$	85,236	$	(35,464	)	$	759,174

Adjusted EBIT	$	81,752	$	13,337	$	10,519	$	(3,042	)	$	102,566
Special items charge ⁽¹⁾	1,336		2,199		—		790			4,325
EBIT	$	80,416	$	11,138	$	10,519	$	(3,832	)	$	98,241
Interest income										964
Interest expense										(6,287		)
Income before income taxes										$	92,918
Three Months Ended March 31, 2018
Net sales	$	434,772	$	247,320	$	75,604	$	—		$	757,696
Inter-segment sales	26,586		4,509		1,907		(33,002		)	—
Total	$	461,358	$	251,829	$	77,511	$	(33,002	)	$	757,696

Adjusted EBIT	$	77,439	$	14,973	$	9,225	$	(158	)	$	101,479
Special items charge ⁽²⁾	758		10,175		—		1,907			12,840
EBIT	$	76,681	$	4,798	$	9,225	$	(2,065	)	$	88,639
Interest income										1,472
Interest expense										(5,913		)
Income before income taxes										$	84,198

(1)

In the three months ended ~~September 30, 2018,~~March 31, 2019, special items reflect ~~pension settlement charges of $4,232 in Americas Welding, rationalization~~Rationalization and asset impairment charges of ~~$2,636~~$1,336 in Americas Welding and $2,199 in International Welding and transaction and integration costs of ~~$970~~$790 in Corporate / Eliminations related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~ acquisition.

(2)

In the ~~nine~~three months ended ~~September 30,~~March 31, 2018, special items reflect pension settlement charges of ~~$4,990~~$758 in Americas Welding, ~~rationalization~~Rationalization and asset impairment charges of ~~$24,353~~$10,175 in International Welding and transaction and integration costs of ~~$3,665~~$1,907 in Corporate / Eliminations related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.

~~(2)~~

In the three and nine months ended September 30, 2017, special items reflect pension settlement charges of $5,283 in Americas Welding, amortization of step up in value of acquired inventories of $2,314 in International Welding and transaction and integration costs of $3,273 and $11,386, respectively, offset by a bargain purchase gain of $51,585 in Corporate / Eliminations related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.

NOTE 6 — RATIONALIZATION AND ASSET IMPAIRMENTS

The Company recorded rationalization and asset impairment net charges of ~~$24,353~~$3,535 in the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The ~~2018~~2019 charges are primarily related to employee severance, asset impairments and gains or losses on the disposal of assets. ~~A description~~

During 2019, the Company initiated rationalization plans within International Welding. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the cost structure with economic conditions and operating needs. At March 31, 2019, liabilities of $927 were recognized in Other current liabilities in the Company's ~~restructuring plans and the related costs is as follows:~~Condensed Consolidated Balance Sheet.

During 2018, the Company initiated rationalization plans within International Welding. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the cost ~~structures~~structure with economic conditions and operating needs. At ~~September 30, 2018,~~March 31, 2019, liabilities of ~~$9,331~~$4,802 were recognized in Other current liabilities in the Company's Condensed Consolidated Balance Sheet.

During 2017, the Company initiated rationalization plans within International Welding. The plans include headcount restructuring and the consolidation of manufacturing operations to better align the cost structures with economic conditions and operating needs. Liabilities related to these plans were substantially paid at September 30, 2018.

The Company believes the rationalization actions will positively impact future results of operations and will not have a material effect on liquidity and sources and uses of capital. The Company continues to evaluate its cost structure and additional rationalization actions may result in charges in future periods.

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The following table summarizes the activity related to ~~the~~ rationalization ~~liabilities in the International Welding segment:~~liabilities:


	Nine Months Ended September 30, 2018			Three Months Ended March 31, 2019
Balance, December 31, 2017	$	6,803
Balance at December 31, 2018				$	11,192
Payments and other adjustments	(20,053		)	(6,769		)
Charged to expense	25,761			2,111
Balance, September 30, 2018	$	12,511
Balance at March 31, 2019				$	6,534

NOTE 7 – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) ("AOCI")

The following tables set forth the total changes in accumulated other comprehensive income (loss) ("AOCI") by component, net of taxes, for the three months ended March 31, 2019 and 2018:



	Three Months Ended March 31, 2019
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2018	$	1,694			$	(82,049	)		$	(213,384	)		$	(293,739	)
Other comprehensive income (loss) before reclassification	682				—				5,099			³	5,781
Amounts reclassified from AOCI	(353		)	¹	787			²	—				434
Net current-period other comprehensive income (loss)	329				787				5,099				6,215
Balance at March 31, 2019	$	2,023			$	(81,262	)		$	(208,285	)		$	(287,524	)

	Three Months Ended March 31, 2018
	Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges				Defined benefit pension plan activity				Currency translation adjustment				Total
Balance at December 31, 2017	$	875			$	(85,277	)		$	(162,784	)		$	(247,186	)
Other comprehensive income (loss) before reclassification	1,010				—				19,328			³	20,338
Amounts reclassified from AOCI	(155		)	¹	1,287			²	—				1,132
Net current-period other comprehensive income (loss)	855				1,287				19,328				21,470
Balance at March 31, 2018	$	1,730			$	(83,990	)		$	(143,456	)		$	(225,716	)


(1)	During the 2019 period, this AOCI reclassification is a component of Net sales of $286 (net of tax of $102) and Cost of goods sold of $(67) (net of tax of $(30)); during the 2018 period, the reclassification is a component of Net sales of $135 (net of tax of $8) and Cost of goods sold of $(20) (net of tax of $(13)). See Note 16 to the consolidated financial statements for additional details.


(2)	This AOCI component is included in the computation of net periodic pension costs (net of tax of $227 and $431 during the three months ended March 31, 2019 and 2018, respectively). See Note 13 to the consolidated financial statements for additional details.


(3)	The Other comprehensive income (loss) before reclassifications excludes $37 and $59 attributable to Non-controlling interests in the three months ended March 31, 2019 and 2018, respectively.

1412

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 78 — ~~EQUITY~~COMMON STOCK REPURCHASE PROGRAM

~~Changes~~The Company has a share repurchase program for up 55 million shares of the Company's common shares. From time to time at management's discretion, the Company repurchases its common shares in ~~equity~~the open market, depending on market conditions, stock price and other factors. During the quarter ended March 31, 2019, the Company purchased a total of 0.8 million shares at an average cost per share of $84.34. As of March 31, 2019, there remained 5.3 million common shares available for repurchase under this program. The repurchased common shares remain in treasury and have not been retired.

NOTE 9 — INVENTORIES

Inventories in the ~~nine months endedSeptember 30, 2018~~Condensed Consolidated Balance Sheets are ~~as follows:~~comprised of the following components:

Shareholders’
Equity

Non-controlling
Interests
Total Equity
Balance at December 31, 2017 $ 931,637
$ 816
$ 932,453
Comprehensive income (loss):

Net income 200,227
(13 ) 200,214
Other comprehensive income (loss) (24,428 ) (92 ) (24,520 )
Total comprehensive income (loss) 175,799
(105 ) 175,694

Cash dividends declared - $1.17 per share (76,833 ) —
(76,833 )
Issuance of shares under benefit plans 18,031
—
18,031
Purchase of shares for treasury ⁽¹⁾
(121,477 ) —
(121,477 )
Balance at September 30, 2018 $ 927,157
$ 711
$ 927,868



	March 31, 2019		December 31, 2018
Raw materials	$	100,283	$	103,820
Work-in-process	59,108		53,950
Finished goods	216,346		204,059
Total	$	375,737	$	361,829


~~(1)~~	The Company's total common shares authorized to be repurchased under the current repurchase program is 55 million shares. As of September 30, 2018, there remained 7.1 million common shares available for repurchase under this program. The repurchased common shares remain in treasury and have not been retired.

At March 31, 2019 and December 31, 2018, approximately 38% and 37%, respectively, of total inventories were valued using the last-in, first out ("LIFO") method. The excess of current cost over LIFO cost was $79,647 and $79,626 at March 31, 2019 and December 31, 2018, respectively.

NOTE 10 — LEASES

On January 1, 2019, the Company adopted Topic 842 using the modified retrospective transition option. The ~~following tables set forth~~adoption of Topic 842 resulted in the ~~total changes~~recording of right-of-use assets and lease liabilities for the Company's operating leases as detailed below:



Operating Leases	Balance Sheet Classification	March 31, 2019
Right-of-use assets	Other assets	$	53,159

Current liabilities	Other current liabilities	$	14,410
Noncurrent liabilities	Other liabilities	39,187
Total lease liabilities		$	53,597

Topic 842 did not materially impact our consolidated net earnings, cash flows or debt covenants.

The Company determines if an agreement is a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease right-of-use assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As most of the Company’s operating leases do not provide an implicit rate, the Company uses a discount rate based on information available at commencement date to present value the lease payments.

The Company has operating leases for sales offices, manufacturing facilities, warehouses and distribution centers, transportation equipment, office equipment and information technology equipment. Some of these leases are noncancelable. Most leases include one or more options to renew, which can extend the lease term from one to 15 years or more. The exercise of lease renewal options is at the Company's sole discretion. Certain leases also include options to purchase the leased property. Leases with an initial term of 12 months or less are not recorded on the Company's Condensed Consolidated Balance sheets. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.

Total lease expense, which is included in ~~accumulated other comprehensive income (loss) ("AOCI") by component, net~~Cost of ~~taxes,~~goods sold and Selling, general and administrative expenses in the Company's Consolidated Statements of Income, was $5,888 in the three months ended March 31, 2019. Cash paid for amounts included in the measurement of lease liabilities for the three months ended ~~September 30, 2018~~March 31, 2019 was $4,684 and ~~2017:~~is included in Net cash

Three Months Ended September 30, 2018
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2018 $ 498
$ (83,269 ) $ (193,708 ) $ (276,479 )
Other comprehensive income (loss)
before reclassification 1,218
—
(406 )
³

812
Amounts reclassified from AOCI 198
¹

3,855
²

—
4,053
Net current-period other
comprehensive income (loss) 1,416
3,855
(406 ) 4,865
Balance at September 30, 2018 $ 1,914
$ (79,414 ) $ (194,114 ) $ (271,614 )

Three Months Ended September 30, 2017
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at June 30, 2017 $ 1,834
$ (94,513 ) $ (179,844 ) $ (272,523 )
Other comprehensive income (loss)
before reclassification (1,814 ) —
18,900
³

17,086
Amounts reclassified from AOCI 1,130
¹

3,958
²

—
5,088
Net current-period other
comprehensive income (loss) (684 ) 3,958
18,900
22,174
Balance at September 30, 2017 $ 1,150
$ (90,555 ) $ (160,944 ) $ (250,349 )


~~(1)~~	During the 2018 period, this AOCI reclassification is a component of Net sales of $(124) (net of tax of $(19)) and Cost of goods sold of $74 (net of tax of $(5)); during the 2017 period, the reclassification is a component of Net sales of $968 (net of tax of $398) and Cost of goods sold of $162 (net of tax of $25). See Note 15 to the consolidated financial statements for additional details.

1513

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts


~~(2)~~	This AOCI component is included in the computation of net periodic pension costs (net of tax of $1,278 and $2,170 during the three months ended September 30, 2018 and 2017, respectively). See Note 12 to the consolidated financial statements for additional details.


~~(3)~~	~~The Other comprehensive income (loss) before reclassifications excludes $(61) and $31 attributable to Non-controlling interests in the three months ended September 30, 2018 and 2017, respectively.~~

provided by operating activities in the Company's Consolidated Statements of Cash Flows. Right-of-use assets obtained in exchange for operating lease liabilities for the three months ended March 31, 2019 was $4,956.

The ~~following tables set forth the~~ total ~~changes in AOCI by component, net of taxes,~~future minimum lease payments for ~~the nine months ended September 30, 2018 and 2017:~~noncancelable operating leases were as follows:

Nine Months Ended September 30, 2018
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at December 31, 2017 $ 875
$ (85,277 ) $ (162,784 ) $ (247,186 )
Other comprehensive income (loss)
before reclassification 987
—
(31,330 )
³

(30,343 )
Amounts reclassified from AOCI 52
¹

5,863
²

—
5,915
Net current-period other
comprehensive income (loss) 1,039
5,863
(31,330 ) (24,428 )
Balance at September 30, 2018 $ 1,914
$ (79,414 ) $ (194,114 ) $ (271,614 )

Nine Months Ended September 30, 2017
Unrealized gain (loss) on derivatives designated and qualifying as cash flow hedges Defined benefit pension plan activity Currency translation adjustment Total
Balance at December 31, 2016 $ 587
$ (95,939 ) $ (233,685 ) $ (329,037 )
Other comprehensive income (loss)
before reclassification (1,547 ) —
72,741
³

71,194
Amounts reclassified from AOCI 2,110
¹

5,384
²

—
7,494
Net current-period other
comprehensive income (loss) 563
5,384
72,741
78,688
Balance at September 30, 2017 $ 1,150
$ (90,555 ) $ (160,944 ) $ (250,349 )



	March 31, 2019
2019	$	13,770
2020	12,578
2021	9,105
2022	6,669
2023	5,153
After 2023	14,766
Total lease payments	$	62,041
Less: Imputed interest	(8,444		)
Operating lease liabilities	$	53,597

~~(1)~~

During the 2018 period, the AOCI reclassification is a component of Net sales of $(12) (net of tax of $(25)) and Cost of goods sold of $40 (net of tax of $(24)); during the 2017 period, the AOCI reclassification is a component of Net sales of $1,580 (net of tax of $602) and Cost of goods sold of $530 (net of tax of $214). See Note 15 to the consolidated financial statements for additional details.


~~(2)~~	The AOCI component is included in the computation of net periodic pension costs (net of tax of $1,927 and $2,532 during the nine months ended September 30, 2018 and 2017, respectively). See Note 12 to the consolidated financial statements for additional details.


~~(3)~~	~~The Other comprehensive income (loss) before reclassifications excludes $(92) and $79 attributable to Non-controlling interests in the nine months ended September 30, 2018 and 2017, respectively.~~

~~Table~~As of ~~Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

~~NOTE 8 — INVENTORIES~~

~~Inventories in~~March 31, 2019, the ~~Condensed Consolidated Balance Sheet~~weighted average remaining lease term is ~~comprised of~~6.6 years and the ~~following components:~~

September 30, 2018 December 31, 2017
Raw materials $ 104,421
$ 97,577
Work-in-process 60,465
50,695
Finished goods 212,545
200,395
Total $ 377,431
$ 348,667

~~At September 30, 2018 and December 31, 2017, approximately 37% and 32% of total inventories were valued using~~weighted average discount rate used to determine the ~~last-in, first out ("LIFO") method, respectively. The excess of current cost over LIFO cost was $78,312 at September 30, 2018 and $68,641 at December 31, 2017.~~operating lease liability is 3.6%.

NOTE ~~9 — CONTINGENCIES~~

The Company, like other manufacturers, is subject from time to time to a variety of civil and administrative proceedings arising in the ordinary course of business. Such claims and litigation include, without limitation, product liability claims, regulatory claims, employment-related claims and health, safety and environmental claims, some of which relate to cases alleging asbestos induced illnesses. The claimants in the asbestos cases seek compensatory and punitive damages, in most cases for unspecified amounts. The Company believes it has meritorious defenses to these claims and intends to contest such suits vigorously.

The Company accrues its best estimate of the probable costs, after a review of the facts with management and counsel and taking into account past experience. For claims or litigation that are material, if an unfavorable outcome is determined to be reasonably possible and the amount of loss can be reasonably estimated, or if an unfavorable outcome is determined to be probable and the amount of loss cannot be reasonably estimated, disclosure would be provided. Many of the current cases are in differing procedural stages and information on the circumstances of each claimant, which forms the basis for judgments as to the validity or ultimate disposition of such actions, varies greatly. Therefore, in many situations a range of possible losses cannot be made. Reserves are adjusted as facts and circumstances change and related management assessments of the underlying merits and the likelihood of outcomes change. Moreover, reserves only cover identified and/or asserted claims. Future claims could, therefore, give rise to increases to such reserves.

Based on the Company's historical experience in litigating product liability claims, including a significant number of dismissals, summary judgments and defense verdicts in many cases and immaterial settlement amounts, as well as the Company's current assessment of the underlying merits of the claims and applicable insurance, the Company believes resolution of these claims and proceedings, individually or in the aggregate, will not have a material effect on the Company's consolidated financial statements.

~~NOTE 10~~11 — PRODUCT WARRANTY COSTS

The changes in the carrying amount of product warranty accruals are as follows:

Nine Months Ended September 30,
2018 2017
Balance at beginning of year $ 22,029
$ 21,053
Accruals for warranties 6,855
8,118
Settlements (8,064 ) (8,672 )
Foreign currency translation and other adjustments ⁽¹⁾
349
2,368
Balance at September 30 $ 21,169
$ 22,867

(1) At September 30, 2017, Foreign currency translation and other adjustments includes $2,114 in an acquired liability related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.



	Three Months Ended March 31,
	2019			2018
Balance at beginning of year	$	19,778		$	22,029
Accruals for warranties	2,847			1,111
Settlements	(2,663		)	(2,301		)
Foreign currency translation and other adjustments	(19		)	110
Balance at March 31	$	19,943		$	20,949

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

NOTE 1112 — DEBT

Revolving Credit Agreement

The Company has a line of credit totaling $400,000 through the Amended and Restated Credit Agreement (the “Credit Agreement”). The Credit Agreement has a five-year term and may be increased, subject to certain conditions, by an additional amount up to $100,000. The interest rate on borrowings is based on either the London Inter-Bank Offered Rate ("LIBOR") or the prime rate, plus a spread based on the Company’s leverage ratio, at the Company’s election. The Company amended and restated the Credit Agreement on June 30, 2017, extending the maturity of the line of credit to June 30, 2022. The Credit Agreement contains customary affirmative, negative and financial covenants for credit facilities of this type, including limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of ~~September 30, 2018,~~March 31, 2019, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

Senior Unsecured Notes

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of $350,000, comprised of four different series ranging from $50,000 to $100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%. Interest on the Notes is paid semi-annually. The Company's total weighted average effective interest rate and remaining weighted average ~~initial~~ tenure of the Notes is 3.3% and 1815 years, respectively. The proceeds of the Notes were used for general corporate purposes. ~~The Notes contain certain affirmative and negative covenants.~~ ~~As of September 30, 2018, the Company was in compliance with all of its debt covenants~~ ~~relating to the Notes.~~

~~NOTE 12~~—~~RETIREMENT AND POSTRETIREMENT BENEFIT PLANS~~

~~The components of total pension cost were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2018 2017 2018 2017
U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans U.S. pension plans Non-U.S. pension plans
Service cost $ 35
$ 796
$ 164
$ 761
$ 105
$ 2,479
$ 459
$ 1,935
Interest cost 4,574
867
4,882
887
13,561
2,774
14,623
2,220
Expected return on plan assets (6,450 ) (1,174 ) (8,306 ) (1,163 ) (20,281 ) (3,714 ) (23,648 ) (3,062 )
Amortization of prior service cost —
—
—
4
—
1
—
12
Amortization of net loss 355
546
506
477
1,123
1,676
1,599
1,395
Settlement charges ⁽¹⁾
4,232
—
5,283
—
4,990
—
5,283
—
Defined benefit plans 2,746

1,035
2,529
966
(502 ) 3,216
(1,684 ) 2,500
Multi-employer plans —
226
—
217
—
687
—
634
Defined contribution plans 5,712
813
5,390
789
17,216
2,678
17,224
1,524
Total pension cost $ 8,458
$ 2,074
$ 7,919
$ 1,972
$ 16,714
$ 6,581
$ 15,540
$ 4,658

~~(1) Pension settlement charges resulting from lump sum pension payments in the three and nine months ended September 30, 2018 and 2017.~~

~~The defined benefit plan components of Total pension cost, other than service cost, are included Other income (expense) in the Company's Consolidated Statements of Income.~~

1814

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

The Notes contain certain affirmative and negative covenants. As of March 31, 2019, the Company was in compliance with all of its debt covenants relating to the Notes.

Shelf Agreements

On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The Shelf Agreements have a five-year term and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the Notes. As of March 31, 2019, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Shelf Agreements.

NOTE 13—RETIREMENT AND POSTRETIREMENT BENEFIT PLANS

The components of total pension cost were as follows:



	Three Months Ended March 31,
	2019						2018
	U.S. pension plans			Non-U.S. pension plans			U.S. pension plans			Non-U.S. pension plans
Service cost	$	35		$	728		$	35		$	851
Interest cost	4,653			936			4,494			970
Expected return on plan assets	(6,245		)	(1,124		)	(6,916		)	(1,274		)
Amortization of prior service cost	—			16			—			1
Amortization of net loss	413			585			384			575
Settlement charges ⁽¹⁾	—			—			758			—
Defined benefit plans	(1,144		)	1,141			(1,245		)	1,123
Multi-employer plans	—			247			—			227
Defined contribution plans	5,908			499			5,894			829
Total pension cost	$	4,764		$	1,887		$	4,649		$	2,179

(1) Pension settlement charges resulting from lump sum pension payments in the three months ended March 31, 2018.

The defined benefit plan components of Total pension cost, other than service cost, are included in Other income (expense) in the Company's Consolidated Statements of Income.

NOTE 14 — OTHER INCOME (EXPENSE)

The components of Other income (expense) were as follows:


	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended March 31,
	2018			2017			2018			2017		2019		2018
Equity earnings in affiliates	$	542		$	766		$	3,301		$	2,001	$	1,006	$	1,200
Other components of net periodic pension (cost) income ⁽¹⁾	(2,950		)	(2,570		)	(130		)	1,578		766		1,008
Other income	1,334			1,401			3,647			3,293		1,991		1,243
Total Other income (expense)	$	(1,074	)	$	(403	)	$	6,818		$	6,872	$	3,763	$	3,451

(1) ~~Other components of net periodic pension (cost) income include~~Includes pension settlement charges in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2018 of ~~$4,232 and $4,990, respectively, and charges of $5,283 in the three and nine months ended September 30, 2017.~~$758. Refer to Note 1213 to the consolidated financial statements for details.

NOTE 1415 — INCOME TAXES

The Company recognized ~~$73,991~~$21,452 of tax expense on pretax income of ~~$274,205,~~$92,918, resulting in an effective income tax rate of ~~27.0%~~23.1% for the ~~nine~~three months ended ~~September 30, 2018.~~March 31, 2019. The effective income tax rate was ~~23.7%~~27.8% for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2018.

The U.S. Tax Cuts and Jobs Act (the “U.S. Tax Act”) was enacted on December 22, 2017. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides for a one-year measurement period and provides guidance for the application

Table of ~~ASC Topic 740,~~ ~~Income Taxes. The Company recognized the income tax effects of the U.S. Tax Act to the extent applicable for 2017, the year of enactment. The provisional expense recognized~~Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in ~~2017 primarily related to taxes on the Company’s unremitted foreign earnings, partially offset by the re-measurement of deferred tax assets and liabilities. The~~thousands, except per share amounts ~~recorded in 2017 were based on reasonable estimates at that time.~~

In the first quarter of 2018, the Department of Treasury and Internal Revenue Service issued Treasury Notice 2018-13. Notice 2018-13 requires the use of the spot exchange rate, instead of the average annual exchange rate, to value unremitted foreign earnings as of December 31, 2017. Based on this new guidance, in the first quarter of 2018 the Company increased the amount recorded in 2017 related to taxes on unremitted foreign earnings by $2,500. The Company recorded an additional adjustment of $2,394 in the third quarter of 2018 primarily due to higher foreign earnings. The Company continues to gather additional information and will complete the accounting within the prescribed measurement period.

The ~~increase~~decrease in the effective tax rate for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, as compared with the same period in ~~2017,~~2018, was primarily due to ~~the nontaxable bargain purchase gain recorded~~an increase in the ~~third quarter~~tax benefit related to the vesting of ~~2017~~stock based compensation in ~~connection with the Air Liquide Welding acquisition, 2018~~2019, rationalization charges in regions with low or no tax benefit recorded in 2018 and ~~2018~~ adjustments and incremental tax expense recorded in 2018 related to the U.S. Tax Act. The 2018 incremental tax expense is the result of the Global Intangible Low-Taxed Income (“GILTI”) provisions of the U.S. Tax Act, partially offset by the Foreign-Derived Intangible Income (“FDII”) provisions. The amount recorded is based on a reasonable estimate as of September 30, 2018. The Company has not determined its accounting policy with respect to GILTI and has therefore included the 2018 estimate as a period cost and included as part of the estimated annual effective tax rate. The Company is continuing to gather additional information to complete its analysis within the prescribed measurement period. The Company is also continuing to analyze applicability of the Base Erosion Anti-Abuse Tax ("BEAT") and the interest expense limitation during the prescribed period.

As of ~~September 30, 2018,~~March 31, 2019, the Company had ~~$15,683~~$27,866 of unrecognized tax benefits. If recognized, approximately ~~$12,075~~$24,328 would be reflected as a component of income tax expense.

The Company files income tax returns in the U.S. and various state, local and foreign jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local or non-U.S. income tax examinations by tax authorities for years before 2014. The Company is currently subject to U.S., various state and non-U.S. income tax audits.

Unrecognized tax benefits are reviewed on an ongoing basis and are adjusted for changing facts and circumstances, including progress of tax audits and closing of statutes of limitations. Based on information currently available, management believes that additional audit activity could be completed and/or statutes of limitations may close relating to existing unrecognized tax benefits. It is reasonably possible there could be a reduction of $~~2,000~~1,753 in previously unrecognized tax benefits by the end of the ~~third~~first quarter ~~2019~~2020.

~~Table of Contents~~

~~LINCOLN ELECTRIC HOLDINGS, INC.~~

~~NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)~~

~~Dollars in thousands, except per share amounts~~

NOTE 1516 — DERIVATIVES

The Company uses derivative instruments to manage exposures to currency exchange rates, interest rates and commodity prices arising in the normal course of business. Both at inception and on an ongoing basis, the derivative instruments that qualify for hedge accounting are assessed as to their effectiveness, when applicable. Hedge ineffectiveness was immaterial in the ~~nine~~three months ended ~~September 30, 2018~~March 31, 2019 and ~~2017.~~2018.

The Company is subject to the credit risk of the counterparties to derivative instruments. Counterparties include a number of major banks and financial institutions. None of the concentrations of risk with any individual counterparty was considered significant at ~~September 30, 2018.~~March 31, 2019. The Company does not expect any counterparties to fail to meet their obligations.

Cash Flow Hedges

Certain foreign currency forward contracts were qualified and designated as cash flow hedges. The dollar equivalent gross notional amount of these short-term contracts was ~~$52,450~~$57,049 at ~~September 30, 2018~~March 31, 2019 and ~~$35,489~~$45,909 at December 31, ~~2017.~~2018.

Fair Value Hedges

Certain interest rate swap agreements were qualified and designated as fair value hedges. At ~~September 30, 2018,~~March 31, 2019, the Company had interest rate swap agreements outstanding that effectively convert notional amounts of $125,000 of debt from a fixed interest rate to a variable interest rate based on three-month LIBOR plus a spread of between 0.5% and 1.8%. The variable rates reset every three months, at which time payment or receipt of interest will be settled.

Net Investment Hedges

From time to time, the Company executes foreign currency forward contracts that qualify and are designated as net investment hedges. No such contracts were outstanding at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017.~~2018.

Derivatives Not Designated as Hedging Instruments

The Company has certain foreign exchange forward contracts that are not designated as hedges. These derivatives are held as economic hedges of certain balance sheet exposures. The dollar equivalent gross notional amount of these contracts was ~~$334,722~~$326,836 and $328,534 at ~~September 30, 2018~~March 31, 2019 and ~~$340,884 at~~ December 31, ~~2017.~~

~~Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:~~

September 30, 2018 December 31, 2017
Derivatives by hedge designation Other Current Assets Other Current Liabilities Other Liabilities Other Current Assets Other Current Liabilities Other Liabilities
Designated as hedging instruments:

Foreign exchange contracts $ 940
$ 399
$ —
$ 519
$ 604
$ —
Interest rate swap agreements —
—
10,871
—
—
5,085
Not designated as hedging instruments:
Foreign exchange contracts 4,604
405
—
2,257
3,747
—
Total derivatives $ 5,544
$ 804
$ 10,871
$ 2,776
$ 4,351
$ 5,085

~~The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:~~

Three Months Ended September 30, Nine Months Ended September 30,
Derivatives by hedge designation Classification of gain (loss) 2018 2017 2018 2017
Not designated as hedges:

Foreign exchange contracts Selling, general & administrative expenses $ 4,894
$ 968
$ 9,143
$ 1,580

2018, respectively.

2016

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

Fair values of derivative instruments in the Company’s Condensed Consolidated Balance Sheets follow:



	March 31, 2019								December 31, 2018
Derivatives by hedge designation	Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities		Other Current Assets		Other Current Liabilities		Other Assets		Other Liabilities
Designated as hedging instruments:
Foreign exchange contracts	$	738	$	131	$	—	$	—	$	647	$	404	$	—	$	—
Interest rate swap agreements	—		—		1,063		4,657		—		—		302		7,033
Not designated as hedging instruments:
Foreign exchange contracts	5,546		1,931		—		—		6,375		829		—		—
Total derivatives	$	6,284	$	2,062	$	1,063	$	4,657	$	7,022	$	1,233	$	302	$	7,033

The effects of undesignated derivative instruments on the Company’s Consolidated Statements of Income consisted of the following:



		Three Months Ended March 31,
Derivatives by hedge designation	Classification of gain (loss)	2019		2018
Not designated as hedges:
Foreign exchange contracts	Selling, general & administrative expenses	$	5,407	$	8,655

The effects of designated hedges on AOCI and the Company’s Consolidated Statements of Income consisted of the following:


Total gain (loss) recognized in AOCI, net of tax	September 30, 2018		December 31, 2017			March 31, 2019		December 31, 2018
Foreign exchange contracts	$	392	$	(224	)	$	502	$	173
Net investment contracts	1,522		1,099			1,521		1,521

The Company expects a gain of $~~392~~502 related to existing contracts to be reclassified from AOCI, net of tax, to earnings over the next 12 months as the hedged transactions are realized.

Three Months Ended September 30, Nine Months Ended September 30,
Derivative type Gain (loss) recognized in the Consolidated Statements of Income: 2018 2017 2018 2017
Foreign exchange contracts Sales $ (143 ) $ 968
$ (37 ) $ 1,580
Cost of goods sold (69 ) 162
(16 ) 530

~~NOTE 16 - FAIR VALUE~~

~~The following table provides a summary of assets and liabilities as of~~ ~~September 30, 2018, measured at fair value on a recurring basis:~~

Description Balance as of
September 30, 2018
Quoted Prices
in Active
Markets for
Identical Assets
or Liabilities
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Assets:

Foreign exchange contracts $ 5,544
$ —
$ 5,544
$ —
Marketable securities 99,282
—
99,282
—
Total assets $ 104,826
$ —
$ 104,826
$ —

Liabilities:

Foreign exchange contracts $ 804
$ —
$ 804
$ —
Interest rate swap agreements 10,871
—
10,871
—
Contingent consideration 2,100
—
—
2,100
Deferred compensation 27,385
—
27,385
—
Total liabilities $ 41,160
$ —
$ 39,060
$ 2,100



		Three Months Ended March 31,
Derivative type	Gain (loss) recognized in the Consolidated Statements of Income:	2019		2018
Foreign exchange contracts	Sales	$	388	$	143
	Cost of goods sold	97		33

2117

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

NOTE 17 - FAIR VALUE

The following table provides a summary of assets and liabilities as of ~~December~~March 31, ~~2017~~2019, measured at fair value on a recurring basis:


Description	Balance as of December 31, 2017		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2019		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	2,776	$	—	$	2,776	$	—	$	6,284	$	—	$	6,284	$	—
Marketable securities	179,125		—		179,125		—
Interest rate swap agreements									1,063		—		1,063		—
Total assets	$	181,901	$	—	$	181,901	$	—	$	7,347	$	—	$	7,347	$	—

Liabilities:
Foreign exchange contracts	$	4,351	$	—	$	4,351	$	—	$	2,062	$	—	$	2,062	$	—
Interest rate swap agreements	5,085		—		5,085		—		4,657		—		4,657		—
Contingent considerations	7,086		—		—		7,086
Contingent consideration									1,000		—		—		1,000
Deferred compensation	25,397		—		25,397		—		28,174		—		28,174		—
Total liabilities	$	41,919	$	—	$	34,833	$	7,086	$	35,893	$	—	$	34,893	$	1,000

~~During the nine months ended September 30,~~The following table provides a summary of assets and liabilities as of December 31, 2018, ~~there were no transfers between Levels 1, 2 or 3.~~measured at fair value on a recurring basis:



Description	Balance as of December 31, 2018		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	7,022	$	—	$	7,022	$	—
Interest rate swap agreements	302		—		302		—
Total assets	$	7,324	$	—	$	7,324	$	—

Liabilities:
Foreign exchange contracts	$	1,233	$	—	$	1,233	$	—
Interest rate swap agreements	7,033		—		7,033		—
Contingent considerations	2,100		—		—		2,100
Deferred compensation	26,524		—		26,524		—
Total liabilities	$	36,890	$	—	$	34,790	$	2,100

The Company’s derivative contracts are valued at fair value using the market approach. The Company measures the fair value of foreign exchange contracts ~~net investment contracts~~ and interest rate swap agreements using Level 2 inputs based on observable spot and forward rates in active markets.

~~The Company measures~~During the ~~fair value of marketable securities using Level~~three months ended March 31, 2019, there were no transfers between Levels 1, 2 ~~inputs based on quoted market prices for similar assets in active markets.~~or 3.

In connection with ~~acquisitions,~~an acquisition, the Company recorded a contingent consideration ~~liabilities,~~liability, which will be paid based upon actual financial results of the acquired entity for a specified future ~~periods.~~period. The fair value of the contingent ~~considerations are~~consideration is a Level 3 valuation and fair valued using ~~either a probability weighted discounted cash flow analysis or~~ an option pricing model.

The deferred compensation liability is the Company’s obligation under its executive deferred compensation plan. The Company measures the fair value of the liability using the market values of the participants’ underlying investment fund elections.

The fair value of Cash and cash equivalents, Accounts receivable, Short-term debt excluding the current portion of long-term debt and Trade accounts payable approximated book value due to the short-term nature of these instruments at both ~~September 30, 2018~~March 31,

Table of Contents

LINCOLN ELECTRIC HOLDINGS, INC.

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

Dollars in thousands, except per share amounts

2019 and December 31, ~~2017~~.2018. The fair value of long-term debt at ~~September 30, 2018~~March 31, 2019 and December 31, ~~2017,~~2018, including the current portion, was approximately ~~$631,600~~$688,190 and ~~$687,428,~~$649,714, respectively, which was determined using available market information and methodologies requiring judgment. The carrying value of this debt at such dates was ~~$698,578~~$705,835 and ~~$704,247~~,$702,660, respectively. Since considerable judgment is required in interpreting market information, the fair value of the debt is not necessarily the amount that could be realized in a current market exchange.

The Company has various financial instruments, including cash and cash equivalents, short and long-term debt and forward contracts. While these financial instruments are subject to concentrations of credit risk, the Company has minimized this risk by entering into arrangements with a number of major banks and financial institutions and investing in several high-quality instruments. The Company does not expect any counterparties to fail to meet their obligations.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Dollars in thousands, except per share amounts)

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read together with the Company’s unaudited consolidated financial statements and other financial information included elsewhere in this Quarterly Report on Form 10-Q.

General

The Company is the world’s largest designer and manufacturer of arc welding and cutting products, manufacturing a broad line of arc welding equipment, consumable welding products and other welding and cutting products. Welding products include arc welding power sources, ~~CNC~~computer numerical control and plasma cutters, wire feeding systems, robotic welding packages, integrated automation systems, automation components, fume extraction equipment, consumable electrodes, fluxes and welding accessories and specialty welding consumables and fabrication. The Company's product offering also includes oxy-fuel cutting systems and regulators and torches used in oxy-fuel welding, cutting and brazing. In addition, the Company has a leading global position in the brazing and soldering alloys market.

The Company’s products are sold in both domestic and international markets. In the Americas, products are sold principally through industrial distributors, retailers and directly to users of welding products. Outside of the Americas, the Company has an international sales organization comprised of Company employees and agents who sell products from the Company’s various manufacturing sites to distributors and product users.

The U.S. Tax Cuts and Jobs Act (the "U.S. Tax Act") was enacted on December 22, 2017. The U.S. Tax Act represents major tax reform legislation that, among other provisions, reduces the U.S. corporate tax rate. The SEC staff issued Staff Accounting Bulletin No. 118 ("SAB 118"), which provides for a one-year measurement period and provides guidance for the application of ASC Topic 740, ~~Income Taxes~~. In accordance with SAB 118, the Company recognized the income tax effects of U.S. Tax Act to the extent applicable for 2017, the year of enactment. The Company's financial results reflect provisional amounts for the impact of the U.S. Tax Act for which accounting analysis under ASC Topic 740 is ongoing. Refer to Note 14 to the consolidated financial statements for further information on the financial statement impact of the U.S. Tax Act.

Results of Operations

The following table shows the Company's results of operations:

Three Months Ended September 30,
2018 2017 Increase (Decrease)
2018 vs 2017
Amount % of Sales Amount % of Sales $ %
Net sales $ 737,099
$ 669,491
67,608
10.1 %
Cost of goods sold 485,547
451,610
33,937
7.5 %
Gross profit 251,552
34.1 % 217,881
32.5 % 33,671
15.5 %
Selling, general & administrative expenses 148,129
20.1 % 133,826
20.0 % 14,303
10.7 %
Rationalization and asset impairment charges 2,636

—

2,636
100.0 %
Bargain purchase gain —
(51,585 )

(51,585 ) (100.0 %)
Operating income 100,787
13.7 % 135,640
20.3 % (34,853 ) (25.7 %)
Interest expense, net 3,969
4,595
(626 ) (13.6 %)
Other income (expense) (1,074 ) (403 ) (671 ) (166.5 %)
Income before income taxes 95,744
13.0 % 130,642
19.5 % (34,898 ) (26.7 %)
Income taxes 25,209
24,531
678
2.8 %
Effective tax rate 26.3 % 18.8 %
Net income including non-controlling interests 70,535
106,111
(35,576 ) (33.5 %)
Non-controlling interests in subsidiaries’ loss (4 ) (15 ) 11
73.3 %
Net income $ 70,539
9.6 % $ 106,126
15.9 % (35,587 ) (33.5 %)
Diluted earnings per share $ 1.07
$ 1.59

Nine Months Ended September 30,
2018 2017
Increase (Decrease)
2018 vs 2017
Amount % of Sales Amount % of Sales $ %
Net sales $ 2,284,847

$ 1,877,246

407,601
21.7 %
Cost of goods sold 1,506,625

1,240,391

266,234
21.5 %
Gross profit 778,222
34.1 % 636,855
33.9 % 141,367
22.2 %
Selling, general & administrative expenses 473,260
20.7 % 387,820
20.7 % 85,440
22.0 %
Rationalization and asset impairment charges 24,353

—

24,353
100.0 %
Bargain purchase gain —
(51,585 ) (51,585 ) (100.0 %)
Operating income 280,609
12.3 % 300,620
16.0 % (20,011 ) (6.7 %)
Interest expense, net 13,222

14,984

(1,762 ) (11.8 %)
Other income (expense) 6,818

6,872

(54 ) (0.8 %)
Income before income taxes 274,205
12.0 % 292,508
15.6 % (18,303 ) (6.3 %)
Income taxes 73,991

69,218

4,773
6.9 %
Effective tax rate 27.0 % 23.7 %
Net income including non-controlling interests 200,214

223,290

(23,076 ) (10.3 %)
Non-controlling interests in subsidiaries’ loss (13 )

(32 )

19
59.4 %
Net income $ 200,227
8.8 % $ 223,322
11.9 % (23,095 ) (10.3 %)
Diluted earnings per share $ 3.03
$ 3.35



	Three Months Ended March 31,
	2019					2018					Favorable (Unfavorable) 2019 vs 2018
	Amount			% of Sales		Amount			% of Sales		$			%
Net sales	$	759,174				$	757,696				$	1,478		0.2	%
Cost of goods sold	500,753					501,142					389			0.1	%
Gross profit	258,421			34.0	%	256,554			33.9	%	1,867			0.7	%
Selling, general & administrative expenses	160,408			21.1	%	161,191			21.3	%	783			0.5	%
Rationalization and asset impairment charges	3,535					10,175					6,640			65.3	%
Operating income	94,478			12.4	%	85,188			11.2	%	9,290			10.9	%
Interest expense, net	5,323					4,441					(882		)	(19.9	%)
Other income (expense)	3,763					3,451					312			9.0	%
Income before income taxes	92,918			12.2	%	84,198			11.1	%	8,720			10.4	%
Income taxes	21,452					23,378					1,926			8.2	%
Effective tax rate	23.1		%			27.8		%			4.7		%
Net income including non-controlling interests	71,466					60,820					10,646			17.5	%
Non-controlling interests in subsidiaries’ loss	(14		)			(4		)			(10		)	(250.0	%)
Net income	$	71,480		9.4	%	$	60,824		8.0	%	10,656			17.5	%
Diluted earnings per share	$	1.12				$	0.92				$	0.20		21.7	%

Net Sales:

The following ~~tables summarize~~table summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 on a consolidated basis:

Three Months Ended September 30th Change in Net Sales due to:
Net Sales
2017 Volume Acquisitions Price Foreign Exchange Net Sales
2018
Lincoln Electric Holdings, Inc. $ 669,491
$ 2,599
$ 29,482
$ 47,241
$ (11,714 ) $ 737,099
% Change

Lincoln Electric Holdings, Inc.
0.4 % 4.4 % 7.1 % (1.7 %) 10.1 %


Nine Months Ended September 30th			Change in Net Sales due to:
Three Months Ended March 31,																				Change in Net Sales due to:
	Net Sales 2017		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2018			Net Sales 2018		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2019
Lincoln Electric Holdings, Inc.	$	1,877,246	$	60,281		$	236,411		$	102,350		$	8,559		$	2,284,847		$	757,696	$	(27,351	)	$	18,494		$	34,353		$	(24,018	)	$	759,174
% Change
Lincoln Electric Holdings, Inc.			3.2		%	12.6		%	5.5		%	0.5		%	21.7		%			(3.6		%)	2.4		%	4.5		%	(3.2		%)	0.2		%

Net sales increased in the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 primarily as a result of acquisitions and stronger organic ~~sales.~~sales, partially offset by unfavorable foreign exchange. The increase in Net sales from acquisitions was driven by the ~~acquisition~~acquisitions of ~~Air Liquide Welding~~Coldwater, Pro Systems and Inovatech within Americas Welding and ~~International Welding.~~Worthington within The Harris Products Group.

Gross Profit:

Gross profit for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 increased, as a percent of sales, compared to the prior year due to price management and segment mix. The three and nine months ended September 30, 2018 includes a last-in, first-out ("LIFO") charge of $3,498 and $9,671, respectively, as compared to with a LIFO charge of $2,196 and $5,855, respectively, in the three and nine months ended September 30, 2017.

Selling, General & Administrative ("SG&A") Expenses:

The ~~increase~~decrease in SG&A expenses for the three ~~and nine~~ months ended ~~September, 2018~~March 31, 2019 as compared to ~~September 30, 2017~~March 31, 2018 is due to favorable foreign exchange, partially offset by higher expense from ~~acquisitions and higher compensation costs, partially offset by lower acquisition transaction and integration costs.~~acquisitions.

Rationalization and Asset Impairment Charges:

The Company recorded net charges of ~~$2,636, $2,575~~$3,535, $2,814 after-tax, and ~~$24,353, $20,807~~$10,175, $7,870 after-tax, in the three ~~and nine~~ months ended ~~September 30,~~March 31, 2019 and 2018, respectively, primarily related to severance, asset impairments and gains or losses on the disposal of assets.

~~Bargain Purchase Gain:~~

In the three and nine months ended September 30, 2017, the Company recorded a bargain purchase gain of $51,585 related to the Air Liquide Welding acquisition. See Note 4 to the consolidated financial statements for additional information.

Interest Expense, Net:

The ~~decrease~~increase in Interest expense, net for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~September 30, 2017~~March 31, 2018 was due to ~~higher~~lower interest income on marketable ~~securities in 2018.~~securities.

~~Other Income (Expense):~~

The decrease in Other income (expense) for the three months ended September 30, 2018 as compared to September 30, 2017 was due to lower equity earnings in affiliates and higher net periodic pension cost.

The decrease in Other income (expense) for the nine months ended September 30, 2018 as compared to September 30, 2017 was due to higher net periodic pension cost, partially offset by higher equity earnings in affiliates.

Income Taxes:

The effective tax rate was ~~higher~~lower for the three ~~and nine~~ months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~September 30, 2017~~March 31, 2018 primarily due to ~~the nontaxable bargain purchase gain recorded~~an increase in the ~~third quarter~~tax benefit related to the vesting of ~~2017~~stock based compensation in ~~connection with the Air Liquide~~

~~Welding acquisition, 2018~~2019, rationalization charges in regions with low or no tax ~~benefits~~benefit recorded in 2018 and adjustments and incremental tax expense recorded in 2018 ~~adjustments~~ related to the U.S. Tax ~~Act. The increase was offset by the U.S.~~Cuts and Job Act (the "U.S. Tax ~~Act’s reduction of the U.S. corporate income tax rate.~~Act").

Net Income:

The increase in Net income for the three ~~and nine~~ months ended ~~September 30, 2018 decreased~~March 31, 2019 as compared to ~~the prior year periods~~March 31, 2018 was primarily due to ~~the bargain purchase gain in 2017~~higher Net sales, a lower effective tax rate and ~~higher SG&A costs in 2018 partially offset by stronger organic sales.~~lower rationalization and asset impairment charges.

Segment Results

Net Sales: The ~~tables~~table below ~~summarize~~summarizes the impact of volume, acquisitions, price and foreign currency exchange rates on Net sales for the three ~~and~~ ~~nine~~ months ended ~~September 30, 2018~~March 31, 2019::



Three Months Ended March 31,			Change in Net Sales due to:
	Net Sales 2018		Volume ⁽¹⁾			Acquisitions ⁽²⁾			Price ⁽³⁾			Foreign Exchange			Net Sales 2019
Operating Segments
Americas Welding	$	434,772	$	(12,395	)	$	12,720		$	27,428		$	(4,806	)	$	457,719
International Welding	247,320		(17,917		)	—			6,475			(17,792		)	218,086
The Harris Products Group	75,604		2,961			5,774			450			(1,420		)	83,369

% Change
Americas Welding			(2.9		%)	2.9		%	6.3		%	(1.1		%)	5.3		%
International Welding			(7.2		%)	—			2.6		%	(7.2		%)	(11.8		%)
The Harris Products Group			3.9		%	7.6		%	0.6		%	(1.9		%)	10.3		%

Three Months Ended September 30th Change in Net Sales due to:
Net Sales
2017
Volume ⁽¹⁾

Acquisitions ⁽²⁾

Price ⁽³⁾

Foreign
Exchange
Net Sales
2018
Operating Segments

Americas Welding $ 398,289
$ 23,084
$ 1,148
$ 36,128
$ (4,639 ) $ 454,010
International Welding 197,617
(20,659 ) 28,334
10,360
(6,030 ) 209,622
The Harris Products Group 73,585
174
—
753
(1,045 ) 73,467

% Change

Americas Welding
5.8 % 0.3 % 9.1 % (1.2 %) 14.0 %
International Welding
(10.5 %) 14.3 % 5.2 % (3.1 %) 6.1 %
The Harris Products Group
0.2 % —
1.0 % (1.4 %) (0.2 %)

(1) ~~Increase~~Decrease for Americas Welding due to ~~improving~~softer demand ~~in a broad range of end markets.~~associated with the current economic environment. Decrease for International Welding due to ~~repositioning of the Company's channel strategy~~integration activities and softer demand in the European ~~market and restructuring activities.~~

~~(2) Increase due to the acquisition of Air Liquide Welding within Americas Welding and International Welding. Refer to Note 4 to the consolidated financial statements for details.~~

~~(3) Increase for Americas Welding and International Welding segments due to increased product pricing as a result of higher input costs.~~

Nine Months Ended September 30th Change in Net Sales due to:

Net Sales
2017

Volume ⁽¹⁾

Acquisitions ⁽²⁾

Price ⁽³⁾

Foreign
Exchange

Net Sales
2018
Operating Segments

Americas Welding $ 1,186,760
$ 82,669
$ 8,813
$ 75,768
$ (2,713 ) $ 1,351,297
International Welding 468,003
(31,765 ) 227,598
25,151
11,328
700,315
The Harris Products Group 222,483
9,377
—
1,431
(56 ) 233,235

% Change

Americas Welding
7.0 % 0.7 % 6.4 % (0.2 %) 13.9 %
International Welding
(6.8 %) 48.6 % 5.4 % 2.4 % 49.6 %
The Harris Products Group
4.2 % —
0.6 % —
4.8 %

(1) Increase for Americas Welding due to improving demand in a broad range of end markets. Decrease for International Welding due to repositioning of the Company's channel strategy in the European market and restructuring activities.market. Increase for The Harris Products Group driven primarily by ~~demand in the retail sector.~~higher consumables volume.

(2) Increase due to the acquisition of ~~Air Liquide Welding~~Coldwater, Pro Systems and Inovatech within Americas Welding and ~~International Welding.~~Worthington within The Harris Products Group. Refer to Note 4 to the consolidated financial statements for details.

(3) Increase for Americas Welding and International Welding segments due to increased product pricing as a result of higher input costs.

Adjusted Earnings Before Interest and Income Taxes:

Segment performance is measured and resources are allocated based on a number of factors, the primary ~~profit~~ measure being the Adjusted ~~EBIT.~~EBIT profit measure. EBIT is defined as Operating income plus Other income (expense). EBIT is adjusted for special items as determined by management such as the impact of rationalization activities, certain asset impairment charges and gains or losses on disposals of assets.

The following table presents Adjusted EBIT by segment:


	Three Months Ended September 30,						Increase (Decrease) 2018 vs. 2017				Three Months Ended March 31,						Favorable (Unfavorable) 2019 vs. 2018
	2018			2017			$		%		2019			2018			$			%
Americas Welding:
Net sales	$	454,010		$	398,289		55,721		14.0	%	$	457,719		$	434,772		$	22,947		5.3	%
Inter-segment sales	31,845			25,546			6,299		24.7	%	29,388			26,586			2,802			10.5	%
Total Sales	$	485,855		$	423,835		62,020		14.6	%	$	487,107		$	461,358		25,749			5.6	%

Adjusted EBIT ⁽⁴⁾	$	89,253		$	74,096		15,157		20.5	%	$	81,752		$	77,439		4,313			5.6	%
As a percent of total sales ⁽¹⁾	18.4		%	17.5		%			0.9	%	16.8		%	16.8		%				—
International Welding:
Net sales	$	209,622		$	197,617		12,005		6.1	%	$	218,086		$	247,320		(29,234		)	(11.8	%)
Inter-segment sales	3,663			5,451			(1,788	)	(32.8	%)	4,209			4,509			(300		)	(6.7	%)
Total Sales	$	213,285		$	203,068		10,217		5.0	%	$	222,295		$	251,829		(29,534		)	(11.7	%)

Adjusted EBIT ⁽⁵⁾	$	10,721		$	10,612		109		1.0	%	$	13,337		$	14,973		(1,636		)	(10.9	%)
As a percent of total sales ⁽²⁾	5.0		%	5.2		%			(0.2	%)	6.0		%	5.9		%				0.1	%
The Harris Products Group:
Net sales	$	73,467		$	73,585		(118	)	(0.2	%)	$	83,369		$	75,604		7,765			10.3	%
Inter-segment sales	1,537			2,064			(527	)	(25.5	%)	1,867			1,907			(40		)	(2.1	%)
Total Sales	$	75,004		$	75,649		(645	)	(0.9	%)	$	85,236		$	77,511		7,725			10.0	%

Adjusted EBIT	$	8,676		$	9,244		(568	)	(6.1	%)	$	10,519		$	9,225		1,294			14.0	%
As a percent of total sales ⁽³⁾	11.6		%	12.2		%			(0.6	%)	12.3		%	11.9		%				0.4	%
Corporate / Eliminations:
Inter-segment sales	$	(37,045	)	$	(33,061	)	3,984		12.1	%	$	(35,464	)	$	(33,002	)	2,462			7.5	%
Adjusted EBIT ⁽⁶⁾	(1,099		)	570			(1,669	)	(292.8	%)	(3,042		)	(158		)	(2,884		)	(1,825.3	%)
Consolidated:
Net sales	$	737,099		$	669,491		67,608		10.1	%	$	759,174		$	757,696		1,478			0.2	%
Net income	$	70,539		$	106,126		(35,587	)	(33.5	%)	$	71,480		$	60,824		10,656			17.5	%
As a percent of total sales	9.6		%	15.9		%			(6.3	%)	9.4		%	8.0		%				1.4	%

Adjusted EBIT ⁽⁷⁾	$	107,551		$	94,522		13,029		13.8	%	$	102,566		$	101,479		1,087			1.1	%
As a percent of sales	14.6		%	14.1		%			0.5	%	13.5		%	13.4		%				0.1	%


(1)	~~Increase~~Margins were flat for the three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~September 30, 2017 driven by stronger organic sales.~~March 31, 2018.


(2)	~~Decrease~~Increase for the three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~September 30, 2017~~March 31, 2018 driven by favorable product mix, partially offset by lower Net sales volumes.


(3)	~~Decrease~~Increase for the three months ended ~~September 30, 2018~~March 31, 2019 as compared to ~~September 30, 2017~~March 31, 2018 driven by ~~lower demand in certain end markets and decreased commodity pricing.~~favorable sales mix associated with consumables volume increases.

(4)

The three months ended ~~September 30,~~March 31, 2019 exclude Rationalization and asset impairment charges of $1,336 as discussed in Note 6 to the consolidated financial statements. The three months ended March 31, 2018 ~~and 2017~~ exclude pension settlement charges of ~~$4,232 and $5,283, respectively,~~$758 related to lump sum pension payments as discussed in Note 1213 to the consolidated financial statements.

(5)

The three months ended ~~September 30,~~March 31, 2019 and 2018 ~~excludes rationalization~~exclude Rationalization and asset impairment charges of ~~$2,636~~$2,199 and $10,175, respectively, related to severance, asset impairments and gains or losses on the disposal of ~~assets. The three months ended September 30, 2017 excludes amortization of step up in value of acquired inventories of $2,314 related to the Air Liquide Welding acquisition~~assets as discussed in Note 46 to the consolidated financial statements.


(6)	The three months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ exclude acquisition transaction and integration costs of ~~$970~~$790 and ~~$3,273,~~$1,907, respectively, ~~and a bargain purchase gain in 2017 of $51,585~~ related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.


(7)	See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.

~~The following table presents Adjusted EBIT by segment for the nine months ended September 30, 2018:~~

Nine Months Ended September 30, Increase (Decrease)
2018 vs. 2017
2018 2017 $ %
Americas Welding:

Net sales $ 1,351,297
$ 1,186,760
164,537
13.9 %
Inter-segment sales 89,671
75,380
14,291
19.0 %
Total Sales $ 1,440,968
$ 1,262,140
178,828
14.2 %

Adjusted EBIT ⁽³⁾
$ 254,850
$ 217,317
37,533
17.3 %
As a percent of total sales ⁽¹⁾
17.7 % 17.2 %
0.5 %
International Welding:

Net sales $ 700,315
$ 468,003
232,312
49.6 %
Inter-segment sales 13,669
15,214
(1,545 ) (10.2 %)
Total Sales $ 713,984
$ 483,217
230,767
47.8 %

Adjusted EBIT ⁽⁴⁾
$ 41,970
$ 29,713
12,257
41.3 %
As a percent of total sales ⁽²⁾
5.9 % 6.1 %
(0.2 %)
The Harris Products Group:

Net sales $ 233,235
$ 222,483
10,752
4.8 %
Inter-segment sales 5,447
6,763
(1,316 ) (19.5 %)
Total Sales $ 238,682
$ 229,246
9,436
4.1 %

Adjusted EBIT $ 28,058
$ 27,491
567
2.1 %
As a percent of total sales 11.8 % 12.0 %
(0.2 %)
Corporate / Eliminations:
Inter-segment sales $ (108,787 ) $ (97,357 ) 11,430
11.7 %
Adjusted EBIT ⁽⁵⁾
(4,443 ) 369
(4,812 ) (1,304.1 %)
Consolidated:
Net sales $ 2,284,847
$ 1,877,246
407,601
21.7 %
Net income $ 200,227
$ 223,322
(23,095 ) (10.3 %)
As a percent of total sales 8.8 % 11.9 % (3.1 %)

Adjusted EBIT ⁽⁶⁾
$ 320,435
$ 274,890
45,545
16.6 %
As a percent of sales 14.0 % 14.6 %
(0.6 %)


~~(1)~~	~~Increase for the nine months ended September 30, 2018 as compared to September 30, 2017 driven by stronger organic sales.~~


~~(2)~~	~~Decrease for the nine months ended September 30, 2018 as compared to September 30, 2017 driven by lower Net sales volumes and the impact of the Air Liquide Welding acquisition.~~


~~(3)~~	The nine months ended September 30, 2018 and 2017 exclude pension settlement charges of $4,990 and $5,283, respectively, related to lump sum pension payments as discussed in Note 12 to the consolidated financial statements.

~~(4)~~

The nine months ended September 30, 2018 excludes rationalization charges of $24,353 related to severance, asset impairments and gains or losses on the disposal of assets. The nine months ended September 30, 2017 excludes amortization of step up in value of acquired inventories of $2,314 related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.


~~(5)~~	The nine months ended September 30, 2018 and 2017 exclude acquisition transaction and integration costs of $3,665 and $11,386, respectively, and a bargain purchase gain in 2017 of $51,585 related to the Air Liquide Welding acquisition as discussed in Note 4 to the consolidated financial statements.


~~(6)~~	~~See non-GAAP Financial Measures for a reconciliation of Net income as reported and Adjusted EBIT.~~

Non-GAAP Financial Measures

The Company reviews Adjusted operating income, Adjusted EBIT, Adjusted net income, Adjusted effective tax rate, Adjusted diluted earnings per share and Return on invested capital, all non-GAAP financial measures, in assessing and evaluating the Company's underlying operating performance. These non-GAAP financial measures exclude the impact of special items on the Company's reported financial results. Non-GAAP financial measures should be read in conjunction with the generally accepted accounting principles in the United States ("GAAP") financial measures, as non-GAAP ~~financial~~ measures are a supplement to, and not a replacement for, GAAP financial measures.

The following table presents the ~~reconciliation~~reconciliations of ~~both Net~~Operating income as reported to Adjusted operating income, Net income as reported to Adjusted net income and Adjusted EBIT, Effective tax rate as ~~well as~~reported to Adjusted effective tax rate and Diluted earnings per share as reported to Adjusted diluted earnings per share:


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2018			2017			2018			2017			2019			2018
Operating income as reported	$	100,787		$	135,640		$	280,609		$	300,620		$	94,478		$	85,188
Special items (pre-tax):
Rationalization and asset impairment charges ⁽¹⁾	2,636			—			24,353			—			3,535			10,175
Acquisition transaction and integration costs ⁽²⁾	970			3,273			3,665			11,386			790			1,907
Amortization of step up in value of acquired inventories ⁽²⁾	—			2,314			—			2,314
Bargain purchase gain ⁽²⁾	—			(51,585		)	—			(51,585		)
Adjusted operating income	$	104,393		$	89,642		$	308,627		$	262,735		$	98,803		$	97,270

Net income as reported	$	70,539		$	106,126		$	200,227		$	223,322		$	71,480		$	60,824
Special items:
Rationalization and asset impairment charges ⁽¹⁾	2,636			—			24,353			—			3,535			10,175
Acquisition transaction and integration costs ⁽²⁾	970			3,273			3,665			11,386			790			1,907
Pension settlement charges ⁽³⁾	4,232			5,283			4,990			5,283			—			758
Amortization of step up in value of acquired inventories ⁽²⁾	—			2,314			—			2,314
Bargain purchase gain⁽²⁾	—			(51,585		)	—			(51,585		)
Tax effect of Special items ⁽⁴⁾	1,033			(3,636		)	(132		)	(5,521		)	(813		)	(381		)
Adjusted net income	79,410			61,775			233,103			185,199			74,992			73,283
Non-controlling interests in subsidiaries’ earnings (loss)	(4		)	(15		)	(13		)	(32		)	(14		)	(4		)
Interest expense, net	3,969			4,595			13,222			14,984			5,323			4,441
Income taxes as reported	25,209			24,531			73,991			69,218			21,452			23,378
Tax effect of Special items ⁽⁴⁾	(1,033		)	3,636			132			5,521			813			381
Adjusted EBIT	$	107,551		$	94,522		$	320,435		$	274,890		$	102,566		$	101,479
Effective tax rate as reported													23.1		%	27.8		%
Net special item tax impact													(0.2		%)	(3.3		%)
Adjusted effective tax rate													22.9		%	24.5		%

Diluted earnings per share as reported	$	1.07		$	1.59		$	3.03		$	3.35		$	1.12		$	0.92
Special items per share	0.14			(0.66		)	$	0.50		(0.57		)	$	0.05		0.18
Adjusted diluted earnings per share	$	1.21		$	0.93		$	3.53		$	2.78		$	1.17		$	1.10

(1) C~~harges~~Charges primarily related to severance, asset impairments and gains or losses on the disposal of assets as discussed in Note 6 to the consolidated financial statements.

(2) Costs ~~and a bargain purchase gain~~ related to the Air Liquide Welding ~~acquisition as discussed in Note 4 to the consolidated financial statements.~~acquisition.

(3) P~~ension~~ Pension settlement charges related to lump sum pension payments as discussed in Note 1213 to the consolidated financial statements.

(4) Includes the net tax impact of Special items recorded during the respective ~~periods, including the net impact of the U.S. Tax act of $2,323 and $4,823 in the three and nine months ended September 30, 2018, respectively.~~periods.

The tax effect of Special items impacting pre-tax income was calculated as the pre-tax amount multiplied by the applicable tax rate. The applicable tax rates reflect the taxable jurisdiction and nature of each Special item.

Liquidity and Capital Resources

The Company’s cash flow from operations can be cyclical. Operational cash flow is a key driver of liquidity, providing cash and access to capital markets. In assessing liquidity, the Company reviews working capital measurements to define areas for improvement. Management anticipates the Company will be able to satisfy cash requirements for its ongoing businesses for the foreseeable future primarily with cash generated by operations, existing cash balances, borrowings under its existing credit facilities and raising debt in capital markets.

The Company continues to expand globally and periodically looks at transactions that would involve significant investments. The Company can fund its global expansion plans with operational cash flow, but a significant acquisition may require access to capital markets, in particular, the long-term debt market, as well as the syndicated bank loan market. The Company’s financing strategy is to fund itself at the lowest after-tax cost of funding. Where possible, the Company utilizes operational cash flows and raises capital in the most efficient market, usually the United States, and then lends funds to the specific subsidiary that requires funding. If additional acquisitions providing appropriate financial benefits become available, additional expenditures may be made.

The following table reflects changes in key cash flow measures:


	Nine Months Ended September 30,								Three Months Ended March 31,
	2018			2017			$ Change		2019			2018			$ Change
Cash provided by operating activities ⁽¹⁾	$	229,777		$	245,354		(15,577	)	$	25,878		$	43,777		(17,899	)
Cash provided by (used by) investing activities ⁽²⁾	48,273			(249,796		)	298,069
Cash (used by) provided by investing activities ⁽²⁾									(13,949		)	34,117			(48,066	)
Capital expenditures	(48,746		)	(38,959		)	(9,787	)	(16,251		)	(14,657		)	(1,594	)
Acquisition of businesses, net of cash acquired	6,591			(72,468		)	79,059
Proceeds from marketable securities, net of purchases	79,843			(140,363		)	220,206		—			42,421			(42,421	)
Cash used by financing activities ⁽³⁾	(196,519		)	(93,928		)	(102,591	)	(105,510		)	(38,486		)	(67,024	)
Purchase of shares for treasury	(121,477		)	(23,012		)	(98,465	)	(75,584		)	(14,724		)	(60,860	)
Cash dividends paid to shareholders	(76,674		)	(69,083		)	(7,591	)	(30,560		)	(25,661		)	(4,899	)
Increase (decrease) in Cash and cash equivalents ⁽⁴⁾	71,499			(79,726		)
(Decrease) increase in Cash and cash equivalents ⁽⁴⁾									(91,715		)	42,355

(1) Cash provided by operating activities decreased for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared with the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 primarily due to ~~changes in cash flows from operating working capital.~~the timing of tax payments.

(2) Cash ~~provided~~used by investing activities increased for the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared with the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 predominantly due to the proceeds from marketable securities in 2018. The Company currently anticipates capital expenditures of ~~$60,000~~$65,000 to ~~$70,000~~$75,000 in ~~2018.~~2019. Anticipated capital expenditures include investments for capital maintenance to improve operational effectiveness. Management critically evaluates all proposed capital expenditures and expects each project to increase efficiency, reduce costs, promote business growth or improve the overall safety and environmental conditions of the Company’s facilities.

(3) Cash used by financing activities increased in the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, compared with the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2018 due to higher purchases of common shares for treasury.

(4) Cash and cash equivalents ~~increased 21.9%~~decreased 25.6%, or ~~$71,499,~~$91,715, to ~~$398,200~~$267,134 during the ~~nine~~three months ended ~~September 30, 2018,~~March 31, 2019, from ~~$326,701~~$358,849 as of December 31, ~~2017.~~2018. This ~~increase~~decrease was predominantly due to purchases of common shares for treasury and cash dividends paid to shareholders partially offset by cash provided by operating activities.The decrease in Cash and cash equivalents during the three months ended March 31, 2019 compares to an increase of 13.0% during the three months ended March 31, 2018. The increase in 2018 was primarily due to cash provided by operating activities and proceeds from marketable securities, partially offset by ~~purchases of common shares for treasury and~~ cash dividends paid to shareholders.The increase in Cash and cash equivalents during the nine months ended September 30, 2018 compares to a decrease of 21.0% during the nine months ended September 30, 2017. The decrease in 2017 was primarily due to cash used for the acquisition of businesses, the purchase of marketable securities and cash dividends paid to shareholders, partially offset by cash provided by operating activities. At ~~September 30, 2018, $360,015~~March 31, 2019, $193,138 of Cash and cash equivalents was held by international subsidiaries.

The Company's total debt remained consistent as compared to December 31, ~~2017.~~2018. Total debt to total invested capital ~~decreased~~increased to ~~43.0%~~44.9% at ~~September 30, 2018~~March 31, 2019 from ~~43.1%~~44.2% at December 31, ~~2017.~~2018.

In ~~October 2018,~~April 2019, the Company paid a cash dividend of ~~$0.39~~$0.47 per share, or ~~$25,134,~~$29,516, to shareholders of record as of ~~September 28, 2018.~~March 29, 2019.

Working Capital Ratios


	September 30, 2018		December 31, 2017		September 30, 2017		March 31, 2019		December 31, 2018		March 31, 2018
Average operating working capital to net sales ⁽¹⁾	18.3	%	15.9	%	20.5	%	18.0	%	16.5	%	18.1	%
Days sales in Inventories	100.8		88.9		108.4		96.2		95.1		96.8
Days sales in Accounts receivable	54.5		52.4		58.6		54.3		52.7		56.7
Average days in Trade accounts payable	52.3		54.5		54.6		51.3		55.5		56.5

(1) Average operating working capital to net sales is defined as the sum of Accounts receivable and Inventories less Trade accounts payable as of period end divided by annualized rolling three months of Net sales.

Return on Invested Capital

The Company reviews return on invested capital ("ROIC") in assessing and evaluating the Company's underlying operating performance. ROIC is a non-GAAP financial measure that the Company believes is a meaningful metric to investors in evaluating the Company’s financial performance and may be different than the method used by other companies to calculate ROIC. ROIC is defined as rolling 12 months of Adjusted net income excluding tax-effected interest income and expense divided by invested capital. Invested capital is defined as total debt, which includes Short-term debt and Long-term debt, less current portions, plus Total equity.

ROIC for the twelve months ended ~~September 30,~~March 31, 2019 and 2018 ~~and 2017~~ were as follows:


	Twelve Months Ended September 30,						Twelve Months Ended March 31,
	2018			2017			2019			2018
Net income	$	224,408		$	276,717		$	297,722		$	252,483
Rationalization and asset impairment charges	30,943			—			18,645			16,765
Pension settlement charges	7,857			5,283			5,928			8,908
Acquisition transaction and integration costs	7,281			11,386			3,381			13,294
Amortization of step up in value of acquired inventories	2,264			2,314			—			4,578
Bargain purchase adjustment (gain)	1,935			(51,585		)
Bargain purchase gain							—			(49,650		)
Tax effect of Special items ⁽¹⁾	25,925			(5,521		)	(7,328		)	21,036
Adjusted net income	$	300,613		$	238,594		$	318,348		$	267,414
Plus: Interest expense, net of tax of $6,087 and $9,795 in 2018 and 2017, respectively	18,295			15,789
Less: Interest income, net of tax of $1,676 and $1,614 in 2018 and 2017, respectively	5,036			2,602
Plus: Interest expense, net of tax of $6,211 and $5,997 in 2019 and 2018, respectively							18,666			18,022
Less: Interest income, net of tax of $1,605 and $1,369 in 2019 and 2018, respectively							4,825			4,114
Adjusted net income before tax effected interest	$	313,872		$	251,781		$	332,189		$	281,322

Invested Capital	September 30, 2018			September 30, 2017			March 31, 2019			March 31, 2018
Short-term debt	$	794		$	2,135		$	110		$	1,981
Long-term debt, less current portion	698,468			704,804			705,725			700,869
Total debt	699,262			706,939			705,835			702,850
Total equity	927,868			945,928			864,665			980,672
Invested capital	$	1,627,130		$	1,652,867		$	1,570,500		$	1,683,522
Return on invested capital	19.3		%	15.2		%	21.2		%	16.7		%


(1)	Includes the net tax impact of Special items recorded during the respective periods, including ~~the~~ net ~~impact~~charges of $31,116 related to the U.S. Tax ~~act of $33,439~~Act in the twelve months ended ~~September 30,~~March 31, 2018.

New Accounting Pronouncements

Refer to Note 1 to the consolidated financial statements for a discussion of new accounting pronouncements.

Acquisitions

Refer to Note 4 to the consolidated financial statements for a discussion of the Company's recent acquisitions.

Debt

Revolving Credit Agreement

limitations on the Company and its subsidiaries with respect to liens, investments, distributions, mergers and acquisitions, dispositions of assets, transactions with affiliates and a fixed charges coverage ratio and total leverage ratio. As of ~~September 30, 2018,~~March 31, 2019, the Company was in compliance with all of its covenants and had no outstanding borrowings under the Credit Agreement.

Senior Unsecured Notes

On April 1, 2015 and October 20, 2016, the Company entered into separate Note Purchase Agreements pursuant to which it issued senior unsecured notes (the "Notes") through a private placement. The 2015 Notes and 2016 Notes each have an aggregate principal amount of ~~$350,000,~~$350,000, comprised of four different series ranging from ~~$50,000~~$50,000 to ~~$100,000,~~$100,000, with maturity dates ranging from August 20, 2025 through April 1, 2045, and interest rates ranging from 2.75% and 4.02%. Interest on the Notes is paid semi-annually. The Company's total weighted average effective interest rate and remaining weighted average ~~initial~~ tenure of the Notes is 3.3% and 1815 years, respectively.

Shelf Agreements

On November 27, 2018, the Company entered into seven uncommitted master note facilities (the "Shelf Agreements") that allow borrowings up to $700,000 in the aggregate. The ~~proceeds~~Shelf Agreements have a five-year term and the average life of borrowings cannot exceed 15 years. The Company is required to comply with covenants similar to those contained in the ~~Notes were used for general corporate purposes. The Notes contain certain affirmative and negative covenants.~~Notes. As of ~~September 30, 2018,~~March 31, 2019, the Company was in compliance with all of its ~~debt~~ covenants ~~relating to~~and had no outstanding borrowings under the ~~Notes.~~Shelf Agreements.

Forward-looking Statements

The Company’s expectations and beliefs concerning the future contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management’s current expectations and involve a number of risks and uncertainties. Forward-looking statements generally can be identified by the use of words such as “may,” “will,” “expect,” “intend,” “estimate,” “anticipate,” “believe,” “forecast,” “guidance” or words of similar meaning. Actual results may differ materially from such statements due to a variety of factors that could adversely affect the Company’s operating results. The factors include, but are not limited to: general economic and market conditions; the effectiveness of operating initiatives; completion of planned divestitures; interest rates; disruptions, uncertainty or volatility in the credit markets that may limit our access to capital; currency exchange rates and devaluations; adverse outcome of pending or potential litigation; actual costs of the Company’s rationalization plans; possible acquisitions, including the Company’s ability to successfully integrate ~~the Air Liquide Welding business acquisition;~~acquisitions; market risks and price fluctuations related to the purchase of commodities and energy; global regulatory complexity; the effects of changes in tax law; tariff rates in the countries where the Company conducts business; and the possible effects of events beyond our control, such as political unrest, acts of terror and natural disasters, on the Company or its customers, suppliers and the economy in general. For additional discussion, see “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in the Company’s exposure to market risk since December 31, ~~2017.~~2018. See “Item 7A. Quantitative and Qualitative Disclosures About Market Risk” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017.~~2018.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective as of ~~September 30, 2018~~March 31, 2019.

Changes in Internal Control Over Financial Reporting

Beginning January 1, ~~2018,~~2019, the Company implemented ASU ~~2014-09, “~~2016-02, ~~Revenue from Contracts with Customers (Topic 606)~~Leases” ("Topic 824"). ~~Although the new revenue standard is expected to have an immaterial impact on the consolidated financial statements on an ongoing basis, the Company implemented~~The adoption of Topic 842 resulted in changes to processes and control activities related to ~~revenue recognition and associated control activities.~~lease accounting, including the implementation of a supporting information technology application.

There have been no other changes in the Company’s internal control over financial reporting during the quarter ended ~~September 30, 2018~~March 31, 2019 that materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is subject, from time to time, to a variety of civil and administrative proceedings arising out of its normal operations, including, without limitation, product liability claims, regulatory claims and health, safety and environmental claims. Among such proceedings are the cases described below.

As of ~~September 30, 2018,~~March 31, 2019, the Company was a co-defendant in cases alleging ~~asbestos-induced~~asbestos induced illness involving claims by approximately ~~3,469~~3,288 plaintiffs, which is a net decrease of 3848 claims from those previously reported. In each instance, the Company is one of a large number of defendants. The asbestos claimants seek compensatory and punitive damages, in most cases for unspecified sums. Since January 1, 1995, the Company has been a co-defendant in other similar cases that have been resolved as follows: ~~54,922~~55,032 of those claims were dismissed, 23 were tried to defense verdicts, 7 were tried to plaintiff verdicts (which were reversed or resolved after appeal), 1 was resolved by agreement for an immaterial amount and ~~794~~893 were decided in favor of the Company following summary judgment motions.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, the reader should carefully consider the factors discussed in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2017~~,2018, which could materially affect the Company’s business, financial condition or future results.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Issuer purchases of its common shares during the ~~third~~first quarter of ~~2018~~2019 were as follows:

Period
Total Number of
Shares Repurchased

Average Price
Paid Per Share

Total Number of
Shares Repurchased
as Part of Publicly
Announced Plans or
Programs

Maximum Number of
Shares that May Yet be
Purchased Under the
Plans or Programs ⁽²⁾
July 1 - 31, 2018 131,803
⁽¹⁾
$ 89.57
131,560
7,745,878
August 1 - 31, 2018 348,576
⁽¹⁾
92.94
348,556
7,397,322
September 1 - 30, 2018 287,153
94.17
287,153
7,110,169
Total 767,532
92.82
767,269



Period	Total Number of Shares Repurchased		Average Price Paid Per Share		Total Number of Shares Repurchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs ⁽²⁾
January 1 - 31, 2019	309,211		$	81.26	309,211	5,868,013
February 1 - 28, 2019	236,200	⁽¹⁾	87.94		208,454	5,659,559
March 1 - 31, 2019	348,746	⁽¹⁾	85.12		328,329	5,331,230
Total	894,157				845,994


(1)	The above share repurchases include the surrender of the Company's common shares in connection with the vesting of restricted awards.

(2)

On April 20, 2016, the Company announced that the Board of Directors authorized a new share repurchase program, which increased the total number of the Company's common shares authorized to be repurchased to 55 million shares. Total shares purchased through the share repurchase programs were ~~47.9~~49.7 million shares at a total cost of ~~$1.8~~$2.0 billion for a weighted average cost of ~~$37.62~~$39.30 per share through ~~September 30, 2018.~~March 31, 2019.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 6. EXHIBITS

(a) Exhibits



31.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of the Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of the Chairman, President and Chief Executive Officer (Principal Executive Officer) and Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.



		LINCOLN ELECTRIC HOLDINGS, INC.

		/s/ ~~Geoffrey P. Allman~~Gabriel Bruno
		~~Geoffrey P. Allman~~Gabriel Bruno
		~~Senior~~Executive Vice President, ~~Corporate Controller~~Finance
		(principal accounting officer)
		~~October~~April 26, ~~2018~~2019

3631



Assets acquired and liabilities assumed	As of July 31, 2017
Accounts receivable	$	89,442
Inventory ⁽¹⁾	97,803
Property, plant and equipment ⁽²⁾	73,056
Intangible assets ⁽³⁾	11,715
Accounts payable	(65,640		)
Pension liability	(67,563		)
Bargain purchase gain ⁽⁶⁾	(49,650		)
Net other assets and liabilities ⁽⁴⁾	(27,210		)
Total purchase price, net of cash acquired⁽⁵⁾	$	61,953



	Shareholders’ Equity			Non-controlling Interests			Total Equity
Balance at December 31, 2017	$	931,637		$	816		$	932,453
Comprehensive income (loss):
Net income	200,227			(13		)	200,214
Other comprehensive income (loss)	(24,428		)	(92		)	(24,520		)
Total comprehensive income (loss)	175,799			(105		)	175,694

Cash dividends declared - $1.17 per share	(76,833		)	—			(76,833		)
Issuance of shares under benefit plans	18,031			—			18,031
Purchase of shares for treasury ⁽¹⁾	(121,477		)	—			(121,477		)
Balance at September 30, 2018	$	927,157		$	711		$	927,868



Description	Balance as of September 30, 2018		Quoted Prices in Active Markets for Identical Assets or Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	5,544	$	—	$	5,544	$	—
Marketable securities	99,282		—		99,282		—
Total assets	$	104,826	$	—	$	104,826	$	—

Liabilities:
Foreign exchange contracts	$	804	$	—	$	804	$	—
Interest rate swap agreements	10,871		—		10,871		—
Contingent consideration	2,100		—		—		2,100
Deferred compensation	27,385		—		27,385		—
Total liabilities	$	41,160	$	—	$	39,060	$	2,100




Three Months Ended September 30th			Change in Net Sales due to:
	Net Sales 2017		Volume			Acquisitions			Price			Foreign Exchange			Net Sales 2018
Lincoln Electric Holdings, Inc.	$	669,491	$	2,599		$	29,482		$	47,241		$	(11,714	)	$	737,099
% Change
Lincoln Electric Holdings, Inc.			0.4		%	4.4		%	7.1		%	(1.7		%)	10.1		%